Gold Prices Rebound Over 1% as Easing Geopolitical Tensions Weigh on Dollar and Oil

Gold prices surged more than 1% on Thursday, rebounding from a one-week low as an easing U.S. dollar and a drop in crude oil prices tempered concerns about inflation and aggressive monetary policy.

The rally in bullion followed a volatile session where geopolitical developments in the Middle East and their impact on central bank policy remained the primary focus for investors.

Market Drivers

The precious metal's recovery was fueled by a shift in market sentiment after U.S. President Donald Trump commented that Iran wanted "to make a deal so badly," which helped calm fears of a wider conflict. This apparent de-escalation caused oil prices to retreat from recent highs and weakened the U.S. dollar, creating a favorable environment for gold.

As of 16:45 ET, the key market figures were:

• Spot gold was up 1.2% at $4,124.36 per ounce.
• Gold futures also gained 1.2% to $4,133.17 per ounce.

A weaker dollar makes gold, which is priced in the U.S. currency, more attractive to buyers holding other currencies.

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Fed Policy in Focus

The decline in oil prices directly influences the outlook for inflation, a critical factor for the Federal Reserve. The development came just a day after minutes from the central bank's June meeting revealed that policymakers were deeply divided on the future path for interest rates.

While the minutes showed some officials favored raising rates immediately due to inflation risks, the subsequent drop in energy costs may reduce the pressure on the Fed to pursue aggressive monetary tightening. Gold, as a non-yielding asset, tends to benefit from a lower interest rate environment, which reduces the opportunity cost of holding bullion.

Supporting this view, New York Fed President John Williams stated Thursday that he did not expect a sustained increase in energy prices for the rest of the year, despite the recent conflict.

Context: A Sharp Reversal

Thursday's gains marked a significant reversal from the previous day. Gold had fallen on Wednesday after the U.S. and Iran exchanged military strikes in the biggest escalation since a recent interim peace agreement. That conflict had initially boosted safe-haven demand for the dollar and sent oil prices higher, weighing on the precious metal.