Gold prices gained 0.9% on Friday to trade at $4,532.03 per ounce as of 1151 GMT, recovering from Thursday's two-month low of $4,365.76. However, the precious metal remains on track for its third consecutive monthly decline, falling approximately 2% so far this month. Despite hopes of a potential U.S.-Iran ceasefire, gold's performance continues to be weighed down by inflation concerns and expectations of higher interest rates. As per Business Standard, U.S. gold futures for August delivery rose 0.7% to $4,562.60, showing some recovery momentum.
Reports emerged on Thursday that the U.S. and Iran reached an agreement to extend their ceasefire and lift restrictions on shipping through the Strait of Hormuz. However, U.S. President Donald Trump is yet to approve the agreement and Iranian state media said it had not been finalised. The Strait carries approximately 20% of the world's traded oil, making this a critical energy chokepoint. UBS analyst Giovanni Staunovo noted that "gold remains negatively correlated to oil, which impacts inflation and monetary policies. Lower oil prices reduces the probability of rate hikes, which is positive for gold."
U.S. inflation increased at its fastest pace in three years in April, driven by higher energy prices due to the Iran war. The surging prices have cemented economists' views that the Federal Reserve would hold interest rates unchanged well into next year, with some even expecting a rate hike by the end of this year. As per Business Standard, while gold is considered a hedge against inflation, the non-yielding asset tends to come under pressure in high-interest-rate environments. The Personal Consumption Expenditures (PCE) index stands at 3.5% as of March 2026 and continues rising, creating additional pressure on the Federal Reserve's monetary policy.
The Federal Reserve's FOMC meeting on April 29, 2026 held rates at 3.50-3.75% and produced four dissents, marking the most divided Fed vote since 1992. With the federal deficit running at approximately $1.9 trillion for fiscal year 2026 and annual debt service already exceeding $1 trillion, aggressive rate hikes could destabilize government finances. Goldman Sachs maintains its year-end 2026 gold price target at $5,400 per ounce, expecting real yields to compress when markets accept the Fed won't tighten enough to break the current cycle. According to Rotbart & Co, "May 2026 marked a period of consolidation across global markets following a turbulent first quarter, with easing safe-haven demand and a firmer interest-rate outlook pressuring precious metals."
