Gold Rebounds Over 1% as Easing Oil Prices Temper Fed Rate Hike Bets

Gold prices surged more than 1% on Thursday, rebounding from a one-week low, as a retreat in the U.S. dollar and falling oil prices tempered investor expectations for aggressive Federal Reserve interest rate hikes.

The rally marks a reversal from the previous session, where heightened geopolitical risk and inflation fears had weighed on the non-yielding asset.

Market Reverses Course

Bullion prices recovered sharply after falling on Wednesday amid a flare-up in tensions between the U.S. and Iran. The initial conflict had driven up oil prices, stoking concerns about inflation and prompting a flight to the U.S. dollar, which typically pressures gold.

However, those dynamics reversed on Thursday, providing a tailwind for the precious metal.

• Spot gold rose 1.2% to $4,124.36 per ounce as of 16:45 ET, according to Investing.com data.
• Gold futures also gained 1.2% to settle at $4,133.17 per ounce.

Geopolitical Tensions and Oil Prices

Ad

The market's focus remains on the Middle East after the U.S. and Iran exchanged military strikes. The U.S. military launched strikes against approximately 170 targets in Iran in retaliation for attacks on commercial oil tankers, with Iranian forces responding by striking U.S. bases in the region, according to state media.

Despite the escalation, oil prices declined after President Donald Trump told reporters that Iran had contacted Washington and wanted to "make a deal so badly." The comments appeared to calm market fears of a wider conflict that could disrupt global energy supplies, thereby easing inflationary pressures.

Federal Reserve Outlook

The moves in oil and the dollar directly impact the outlook for monetary policy. Minutes from the Federal Reserve's June meeting, released Wednesday, showed policymakers were evenly divided on the path for interest rates, with the debate centered on inflation risks.

Some officials saw a case for raising rates, concerned that inflation could remain elevated due to factors including the conflict in Iran. However, the subsequent drop in oil prices supports the view of other policymakers who believe inflation will cool, reducing "the need for aggressive monetary tightening," noted David Morrison, senior market analyst at Trade Nation. This sentiment was echoed by New York Fed President John Williams, who said Thursday he did not expect a sustained rise in energy prices.