The start of this week saw gold recover from earlier losses as growing optimism over a possible ceasefire between Iran and Israel encouraged buying interest, helping the precious metal stabilize after touching a multi-month low. However, the upside remained constrained as stronger United States economic data boosted expectations that the Fed will raise interest rates later this year.
Spot gold traded at $4,334.22 an ounce, after falling to its lowest level since March during the session. U.S. gold futures for August delivery also ended the day nearly unchanged at $4,363.40 an ounce.
Market sentiment improved after President Donald Trump stated that Israel and Iran were seeking an immediate ceasefire, adding that negotiations aimed at securing peace were progressing. The comments helped ease concerns about further escalation in the region and prompted a rebound in gold prices from their intraday lows.
Zaner Metal’s VP Peter Grant reports that a potential ceasefire helped support gold after earlier selling pressure pushed prices lower during overseas trading. Although gold is widely viewed as a safe-haven asset during periods of geopolitical uncertainty, prospects for peace can also benefit the metal by reducing fears of prolonged economic disruption.
A ceasefire could ease concerns about energy supply shocks and inflationary pressures, potentially reducing the need for aggressive monetary tightening by central banks. Still, gold’s upside was restrained by a stronger U.S. dollar, which hovered near a two-month high following last week’s employment report.
The U.S. economy added over 170,000 jobs last month, strengthening expectations that the Federal Reserve may need to keep interest rates elevated or even implement another rate increase before year-end.
Higher interest rates often impact gold negatively as the precious metal does not generate income, thus making assets that bear interest relatively more attractive. In addition, a stronger dollar increases the cost of gold for buyers using other currencies. Market participants are currently pricing in a 43% probability of a quarter-point Federal Reserve rate hike towards the end of the year, a significant increase from roughly 14% one month ago.
The inflation data released on Wednesday offered no comfort to precious metals traders as the report showed that inflation had soared to multi-month highs, further strengthening expectations of hawkish U.S. monetary policy.
Meanwhile, Citi lowered its short-term gold price forecast to $4,000 an ounce, citing expectations of higher interest rates and persistent energy market pressures linked to ongoing disruptions around the Strait of Hormuz.
Gold producers like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) are unlikely to alter their projections significantly since gold is currently trading at levels that are well above the price the metal was trading at this time last year.
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