Gold Rises Thanks to Federal Comments and Trump's Efforts to End Iran War

SadaNews - Gold extended its gains for the second day after comments from the Federal Reserve eased bets on interest rate hikes, along with a report stating that U.S. President Donald Trump is ready to end the Iran war without reopening the Strait of Hormuz.

The precious metal surged by up to 2.4% on Tuesday before paring some of its gains to trade around $4,560 per ounce.

This rise followed a report by the Wall Street Journal indicating that Trump informed his aides of his readiness to end the U.S. military campaign against Iran even if the Strait of Hormuz remains largely closed, boosting hopes for an end to the month-long conflict.

U.S. Inflation Under Control Despite Rising Oil Prices

Meanwhile, Federal Reserve Chair Jerome Powell stated that long-term inflation expectations in the U.S. appear to be under control, despite the rise in oil prices driven by the war, which has intensified inflationary pressures and supported bets on interest rate hikes. He added that the central bank's policy is "in a good position to allow us to wait and see."

The decline in U.S. Treasury yields following Powell's comments supported gold prices, as it reduced the opportunity cost of holding the non-yielding metal. However, money markets still bet on less than one rate cut by the end of the year, while yield curves remain steeply sloped.

This means that the market "has not yet shifted to pricing in an economic slowdown," according to Liu Xiao, an analyst at Zijin Tianfeng Futures Co, adding that "gold is likely to remain under pressure with limited scope for a rapid recovery at this time."

Risks of Ongoing Conflict Pressure Expectations

Traders are also assessing mixed signals from the U.S., as the White House threatened to escalate strikes against Iran, including targeting critical civilian infrastructure. In contrast, Tehran has enacted legislation to impose fees on vessels crossing the Strait of Hormuz and is pressuring the Houthi armed group in Yemen to prepare for a new campaign against shipping vessels in the Red Sea. Iran attacked a Kuwaiti oil tanker near Dubai, according to a statement from the Kuwaiti Petroleum Corporation on Tuesday.

David Wilson, commodity strategy director at BNP Paribas SA, remarked: "Markets are largely trading on news, while in reality, not much has changed." He added, "What that indicates is that if a peace agreement is reached, gold will rise sharply. Conversely, if some kind of ground invasion by U.S. forces occurs, gold is expected to take the opposite direction and decline."

These developments have raised concerns about the potential for the conflict to continue for an extended period, which could lead to further increases in energy prices and prompt central banks to raise interest rates to curb inflation, a negative factor for non-yielding precious metals.

This, along with liquidity constraints in broader financial markets, has placed gold on track to register a monthly decline of about 13%.

As of 12:15 PM Singapore time, spot gold rose by 1% to $4,558 per ounce.

Silver increased by 2.8% to $72.04, and both platinum and palladium rose. The Bloomberg Dollar Spot Index fell by 0.1% after finishing the previous session up by 0.3%.