Gold's rise is driven by geopolitical expectations and monetary policy
Gold prices saw a notable rebound on Monday, with the yellow metal rising toward $4,190 per ounce, recouping some of the losses it had suffered in recent sessions.
This move comes as investors weigh sudden geopolitical developments in the Middle East against shifting expectations regarding U.S. monetary policy.
U.S.-Iran Agreement Boosts Gold
Today’s rise in gold prices was indirectly driven by falling oil prices, following international reports that the United States and Iran have agreed on a roadmap leading to a final peace agreement within 60 days.
This diplomatic development helped ease market fears, as tensions subsided following the recent exchange of threats between Tehran and Washington regarding the conflict in Lebanon.
Energy supplies also stabilized, despite Tehran’s earlier claims that it would close the Strait of Hormuz, millions of barrels of crude oil continued to flow through the strait over the weekend, coinciding with Arab Gulf producers’ readiness to increase output, which dispelled the specter of an inflationary shock caused by energy prices.
Monetary Policy and the Federal Reserve: High Interest Rates Weigh on Gold
On the other hand, gold is facing pressure stemming from the Federal Reserve’s hawkish stance; although interest rates were held steady at the last meeting, the tone leaned toward hawkishness.
Furthermore, 9 out of 19 Fed policymakers expect at least one interest rate hike this year, amid growing market bets on a possible hike as early as September.
Furthermore, Warsh’s hawkish remarks reinforced these expectations that U.S. interest rates will remain high for a longer period, which economically reduces gold’s appeal as an asset that does not generate monthly or annual returns.
Markets Await U.S. Inflation Data (PCE)
This week, investors and traders in the gold markets are focusing on the release of the U.S. Personal Consumption Expenditures (PCE) price index.
The PCE index is the Federal Reserve’s preferred measure of inflation, and its results will provide greater clarity on the Fed’s next move in September.
Analytical Outlook: What Is the Next Direction for Gold?
According to analysts at Saxo Bank, the yellow metal remains stuck in a state of technical uncertainty for the time being.
Although the political lull between the U.S. and Iran has eased fears of energy disruptions and widespread inflation, the specter of higher interest rates is preventing gold from making broader historic gains without a correction.
Despite the current challenging conditions, experts assert that continued demand from central banks to buy gold will provide strong structural support for prices, significantly limiting downside risks in the medium and long term and maintaining its status as a safe haven.
