Gold prices edged higher on Friday as investors weighed reports of a potential U.S.-Iran ceasefire deal amid growing concerns around inflation and U.S. interest rate hikes, according to The Economic Times. U.S. gold futures rose 0.2% to $4,543.10, recovering from Thursday's two-month low when prices had fallen 1.8% to $4,374.11 per ounce. The United States and Iran reached an agreement on Thursday to extend their ceasefire and lift restrictions on shipping through the Strait of Hormuz, sources told Reuters, though U.S. President Donald Trump has yet to approve it and Iranian state media said it had not been finalised. Despite earlier dips, gold futures saw a modest increase, reflecting ongoing market uncertainty as investors assess the potential implications of a ceasefire extension.
Oil markets remained highly volatile amid the geopolitical developments, with Brent crude spiking toward $98 per barrel on Thursday, raising inflation risks as well as the expectation for rate hikes, as reported by NDTV. The surge came after US forces conducted strikes in southern Iran against targets including boats attempting to lay mines and missile launch sites, creating fresh supply concerns. Brent crude futures rose 2% in Asian trade on Tuesday, reflecting concerns over potential supply disruptions and continued tensions around the Strait of Hormuz, one of the world's most critical oil transit routes. The near-closure of the crucial energy waterway has triggered price surges for oil products that have shaken the global economy since late February. Even if a peace deal is achieved, higher energy prices are likely to keep inflation elevated and force central banks to hold rates higher for longer, rather than deliver cuts many expected before the Iran war. Kelvin Wong from OANDA noted that even though a peace deal is being done and dusted between the U.S. and Iran, the damage that has been done to Middle East oil production facilities could actually prevent a rapid normalisation of oil flows to the rest of the world.
Iran deal negotiations showed signs of prolonged complexity as US Secretary of State Marco Rubio indicated that discussions could still take several days before any concrete resolution emerges, according to LiveMint. This timeline extension comes a day after US forces conducted what Washington called defensive strikes in southern Iran, creating fresh concerns about the prospects of a comprehensive peace deal. Iran accused the United States of violating the ceasefire after strikes were carried out near the disputed Strait of Hormuz, potentially complicating ongoing diplomatic efforts aimed at ending the conflict and restoring normal shipping activity in the region. The extended timeline reflects the reality that even though a peace deal is being negotiated, the damage done to Middle East oil production facilities could actually prevent a rapid normalisation of oil flows to the rest of the world, as noted by Kelvin Wong, a senior market analyst at OANDA. The tensions between US and Iranian forces near the Strait of Hormuz occurred even as both sides considered progress toward an interim peace deal, creating additional complexity in the negotiation process.
The precious metals market faces heightened pressure from markets pricing in a U.S. Federal Reserve rate hike before year-end, with a 56% chance of a move by December, according to CME Group's FedWatch tool as reported by The Hindu BusinessLine. This represents an increase from the earlier 54% chance reported by Reuters. The market has started to price in this situation, showing very high odds of an interest rate hike to come in this year, as noted by market analysts. U.S. inflation increased at its fastest pace in three years in April, driven by higher energy prices due to the Iran war and cementing economists' views that the Federal Reserve would hold interest rates unchanged well into next year, as reported by The Economic Times. Federal Reserve Bank of New York President John Williams said central bank monetary policy is in the right place given the outlook, adding he expects inflation to be high in the near term with the pressures easing later in the year. St. Louis Federal Reserve President Alberto Musalem said the central bank may need to increase its policy rate if inflation does not resume easing within the next six months. Investors are now awaiting the release of U.S. Personal Consumption Expenditures data later in the day for further signals on the Federal Reserve's policy direction, as reported by The Economic Times. Market participants are now closely watching upcoming US Core PCE inflation and GDP data, which could significantly influence Fed expectations and bullion movement, as noted by Moneycontrol. Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities, said gold prices traded weak as rising crude prices and renewed geopolitical uncertainty kept markets cautious.
Signals from the options market show traders withdrawing their bullish convictions and expecting less wild swings going forward, as noted by Global X ETFs Australia. Implied volatility, a measure of expected future movement, on State Street's SPDR Gold Shares, the biggest gold-backed exchange-traded fund, has collapsed. In addition, the premium to speculate or hedge on it rising over the next three months is near the lowest level since December. "Traders are losing confidence in the safe-haven narrative and they have better things to do with the money" such as investing in some of the high profile listings," said Justin Lin, an investment strategist at Global X ETFs Australia. Gold is likely 'looking at $4,000-4,250 range for support if oil trades higher,' he added. Other precious metals also experienced gains as markets responded to the ceasefire reports, with spot silver rising 0.7% to $76.17 per ounce, platinum gaining 0.2% to $1,926.18, and palladium rising 0.9% to $1,380.94, as reported by The Economic Times. China's net gold imports via Hong Kong rose 81.2% in April from the previous month, data showed, indicating continued demand from major consumers despite market volatility.
