TLDR
- Precious metal advanced more than 1% following US-Iran interim peace agreement signing
- Agreement provides toll-free Strait of Hormuz passage for 60-day period
- Federal Reserve maintained rates at 3.50%-3.75% while indicating potential October increase
- Fed Chair Kevin Warsh underscored determination to combat persistent inflation
- Rising dollar and elevated rate projections are constraining gold’s rally
Precious metals rallied Thursday following the signing of an interim peace accord between the United States and Iran, providing traders with an opportunity to re-enter the market after the previous session’s selloff.
Spot gold advanced approximately 1.2% to reach $4,307 per ounce. The gain followed Wednesday’s 1.7% decline, when an appreciating US dollar and climbing Treasury yields pressured prices in the aftermath of the Federal Reserve’s monetary policy announcement.
The diplomatic accord between Washington and Tehran was executed electronically Wednesday evening. The 14-point memorandum establishes a 60-day negotiation framework.
The agreement guarantees toll-free transit through the Strait of Hormuz for Iranian vessels. Complete restoration of maritime traffic through this critical waterway is anticipated within 30 days.
This strategic chokepoint serves as a vital corridor for worldwide oil shipments. Its reopening should alleviate energy supply anxieties that have contributed to inflationary pressures in recent months.
Oil prices retreated following the announcement, as traders anticipated additional supply entering the market. Declining energy costs could potentially ease inflationary pressures going forward.
Central Bank Maintains Hawkish Posture
The Federal Reserve held its benchmark interest rate steady in the 3.50% to 3.75% range during Wednesday’s meeting. However, policymakers eliminated forward guidance language from their official statement, while updated dot plot projections revealed nine of 19 committee members anticipate at least one rate increase during 2026.
Market participants are now fully anticipating a rate hike by October.
Fed Chair Kevin Warsh adopted an uncompromising stance on inflation during his inaugural meeting leading the central bank. The committee also revised its inflation projections upward, prompting investors to scale back expectations for rate reductions.
Elevated interest rates typically disadvantage gold. Since the precious metal generates no yield, it becomes less appealing when borrowing costs increase.
Currency Headwinds Persist
The US Dollar Index climbed modestly Thursday after surging 0.6% during the prior session. An appreciating dollar increases gold’s cost for international buyers holding alternative currencies, potentially dampening demand.
Christopher Wong, currency strategist at Oversea-Chinese Banking Corp, noted that declining oil prices provide marginal support for gold. However, he emphasized that the Fed’s hawkish positioning “complicates the story” and warrants near-term caution.
Ryan Mckay, senior commodity strategist at TD Securities, suggested the rate increase expectation was already incorporated into prices before Wednesday’s Fed announcement. He characterized the prevailing outlook for gold as bearish.
Silver climbed 1.3% to $68.78 per ounce. Platinum and palladium also posted gains. Copper futures traded on the London Metal Exchange declined 0.9%.
Uncertainty persists regarding whether the Strait of Hormuz has physically resumed full operations following the agreement’s signing.
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