Gold rallies above $4,300 as falling oil revives Fed cut hopes

Gold’s latest rally is being driven less by panic and more by relief.

Bullion advanced for a third session on Monday as investors reacted to a tentative US-Iran peace framework that could reopen the Strait of Hormuz, ease pressure on energy markets and soften the inflation shock that had recently weighed on the metal.

Spot gold rose 2.5% to $4,322.87 an ounce by 0312 GMT, while US gold futures for August delivery climbed to $4,344.80.

The move came alongside a weaker dollar and a sharp fall in crude.

Brent dropped more than 4% after Washington and Tehran signalled support for an agreement, with a formal signing expected later this week in Switzerland.

The dollar index also slipped to its lowest level in 10 days, making gold cheaper for buyers using other currencies.

Peace premium replaces war premium

Gold’s reaction may appear counter-intuitive because the metal is often bought during geopolitical stress.

This time, however, the driver was the interest-rate channel.

The war had pushed oil higher and revived fears that energy-led inflation would force the Federal Reserve to keep policy tighter for longer.

A lower oil price changes that calculation. Traders reduced bets on another US rate increase later this year, according to CME FedWatch.

That helped bullion regain its appeal, as gold offers no yield and usually struggles when returns on cash and bonds rise.

The analysts said the combination of cheaper oil and a softer dollar had given bullion its strongest tailwind in weeks, although the durability of the move would depend on whether the diplomatic breakthrough holds.

Fed meeting comes into view

The next test is the Federal Reserve’s policy decision on Wednesday, the first under Chair Kevin Warsh.

Markets broadly expect rates to be left unchanged, but the tone of the statement will matter after recent data showed stubborn price pressure in the US economy.

A less hawkish Fed would strengthen the case for gold to extend its rebound. Any warning that inflation risks remain elevated could quickly cap gains.

Wider metals rally

Other precious metals joined the advance. Silver rose 3.6% to $70.39 an ounce, platinum gained 3.3% to $1,773.70 and palladium climbed 3.3% to $1,324.75.

For now, gold is being pulled by two forces at once: fading Middle East risk in the short term and persistent concerns over currency debasement, fiscal strain and geopolitical fragmentation over the longer run.

That mix has allowed investors to return to bullion even as traditional haven demand cools.