Gold Prices Rebound Over 1% as Easing Oil, Dollar Cool Inflation Fears

Gold prices surged more than 1% on Thursday, rebounding from a one-week low hit in the previous session. The rally was primarily driven by a softening U.S. dollar and a decline in oil prices, which helped temper investor concerns about mounting inflationary pressures.

By late afternoon trading, spot gold was up 1.2% at $4,124.36 per ounce, while gold futures also gained 1.2% to settle at $4,133.17 per ounce, according to Investing.com data. As a non-yielding asset, gold typically benefits from a weaker dollar, which makes it less expensive for foreign buyers, and from moderating inflation expectations, which enhances its appeal as a store of value.

Geopolitical Tensions and Market Reaction

The precious metal's recovery followed a volatile period marked by escalating military conflict between the United States and Iran. Earlier in the week, the U.S. military conducted strikes on approximately 170 targets in Iran in retaliation for attacks on commercial oil tankers, leading to retaliatory strikes from Iranian forces on U.S. bases in the region, according to reports.

However, crude oil prices, which had hit a three-week high on the conflict, retreated after U.S. President Donald Trump told reporters that Tehran had indicated a desire "to make a deal." This comment appeared to soothe market fears of a wider conflict that could disrupt global energy supplies, despite other more confrontational rhetoric from the president.

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Divided Federal Reserve Outlook

The market is also weighing the potential impact of the conflict on U.S. monetary policy. Minutes from the Federal Reserve's June 16-17 meeting, released Wednesday, revealed that policymakers were deeply divided on the future path of interest rates.

Some Federal Open Market Committee (FOMC) members argued for an immediate rate hike, citing inflation risks from surging oil prices. However, the minutes showed a broader debate, with many officials believing inflation could cool on its own. David Morrison, a senior market analyst at Trade Nation, noted that a wind-down in hostilities could lead to a "sudden drop in inflation," reducing the need for aggressive monetary tightening. This sentiment was echoed Thursday by New York Fed President John Williams, who said he did not expect a sustained rise in energy prices.