Gold Prices Rise After US-Iran Deal, But Fed Rate Hike Threat Weighs on Outlook

TLDR

• Gold rose over 1% after the US and Iran signed an interim peace deal
• The deal includes toll-free passage through the Strait of Hormuz for 60 days
• The Fed held rates at 3.50%-3.75% but signaled a possible hike by October
• New Fed Chair Kevin Warsh emphasized commitment to fighting inflation
• A stronger dollar and higher rate expectations are limiting gold’s upside

Gold climbed on Thursday after the United States and Iran signed an interim peace agreement, giving investors a reason to buy back into the precious metal after a rough previous session.

Spot gold rose about 1.2% to $4,307 an ounce. That came after a 1.7% drop on Wednesday, when a stronger US dollar and rising Treasury yields weighed on prices following the Federal Reserve’s latest policy decision.

The US-Iran deal was signed electronically on Wednesday evening. It is a 14-point memorandum that starts a 60-day negotiation window.

Under the agreement, Iran will allow toll-free passage through the Strait of Hormuz. Full traffic through the strait is expected to be restored within 30 days.

The strait is a key shipping route for global oil exports. Its reopening is expected to ease energy supply concerns that have driven up inflation in recent months.

Oil prices fell on the news, as markets priced in more supply coming back online. Lower energy costs could reduce inflation pressure over time.

Fed Signals Rate Hike Still Possible

The Federal Reserve kept interest rates unchanged at 3.50% to 3.75% on Wednesday. But it removed language about future rate adjustments from its statement, and updated projections showed nine of 19 officials expect at least one rate hike in 2026.

Traders are now fully pricing in a rate increase by October.

New Fed Chair Kevin Warsh held a firm line on inflation at his first meeting in the role. The Fed also raised its inflation forecasts, which pushed investors to pull back on rate cut bets.

Higher interest rates are generally negative for gold. The metal pays no interest, so it becomes less attractive when rates rise.

Dollar Strength Adds Pressure

The US Dollar Index edged higher on Thursday after jumping 0.6% the day before. A stronger dollar makes gold more expensive for buyers using other currencies, which can reduce demand.

Christopher Wong, a strategist at Oversea-Chinese Banking Corp, said lower oil prices help gold at the margin. But he added that the Fed’s stance “complicates the story” and calls for caution in the near term.

Ryan Mckay, senior commodity strategist at TD Securities, said the rate hike expectation was already priced in before Wednesday’s Fed decision. He described the overall tilt for gold as bearish.

Silver rose 1.3% to $68.78 an ounce. Platinum and palladium also gained. Copper futures on the London Metal Exchange fell 0.9%.

It remains unclear whether the Strait of Hormuz has physically reopened yet following the deal signing.

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