Gold bulls eye fresh highs as oil rout rewires Fed rate expectations

Gold extended its advance on Wednesday as falling oil prices and hopes of a US-Iran peace agreement softened one of the market’s biggest inflation worries before the Federal Reserve’s policy decision.

Spot bullion rose for a fifth straight session, trading near a one-week high, as investors weighed the prospect of Iranian oil returning to global markets against uncertainty over the agreement’s final terms.

The move was measured rather than euphoric.

Traders still have to hear from Kevin Warsh at his first meeting as Fed chair, where the tone on inflation and future rate risks may decide whether gold’s rebound has further room to run.

Oil relief changes the rate debate

The latest support for bullion came less from fear and more from the rates market.

A possible US-Iran deal, including sanctions relief that would allow Tehran to sell oil once the agreement is signed, has dragged crude prices towards three-month lows.

That matters for gold because lower energy costs can ease inflation pressure and reduce the need for tighter monetary policy.

Analysts said the pullback in oil prices has eased some upward pressure on interest rates and tempered rate-hike expectations, although the market rally appears to be losing momentum as investors shift focus to the Fed’s announcement.

Spot gold was up 0.3% at $4,341.12 an ounce by 0230 GMT, while August futures gained 0.2% to $4,361.10.

Warsh’s first Fed test dominates trading

The Fed is widely expected to leave rates unchanged, but the message may matter more than the decision.

Warsh inherits a difficult mix: inflation still above target, political pressure for easier policy, and markets that have recently priced in a meaningful chance of another rate increase.

Traders now see a 59% probability of a December rate hike, down from about 70% last week, according to CME FedWatch.

That shift has helped gold, which tends to struggle when borrowing costs rise because it offers no yield.

As per experts, the investors are still unsure how Warsh would balance his hawkish reputation with pressure from a White House seeking a more dovish pivot.

A firm warning on inflation could cap gold’s gains, while a patient tone may keep buyers engaged.

Central banks keep a floor under demand

Beyond the short-term Fed trade, bullion continues to draw support from official-sector demand.

Westpac analysts noted that longer-term support should persist, helped by Asian demand and central bank buying as a hedge against geopolitical and policy risks.

That view was echoed by the World Gold Council, whose latest survey showed a record 45% of reserve managers expect to increase their own gold holdings over the next year.

Other precious metals also moved higher. Silver rose 0.3% to $70.38 an ounce, platinum gained 0.5% to $1,812.80, and palladium added 0.3% to $1,355.65.