Gold retreated modestly on Wednesday after touching its highest level in more than a month, as investors locked in recent gains while monitoring closely the fragile state of United States and Iran peace negotiations and their implications for inflation and monetary policy.
Spot gold was down 0.9% at $4,796.56 per ounce in early trading after hitting its highest since March 18 earlier in the session. US gold futures for June delivery fell 0.6% to $4,820.50.
The dip follows a strong prior session in which prices climbed roughly 2%, lifted by renewed optimism that Washington and Tehran could reach a deal to de-escalate their ongoing conflict. According to the Associated Press, mediators made progress in extending the ceasefire, with both sides agreeing in principle to prolong negotiations centred on Tehran’s nuclear programme, the Strait of Hormuz, and war compensation.
“Gold prices have been rallying on improved risk appetite and selling off during bouts of risk aversion in recent sessions, running counter to the metal’s traditional safe-haven role. Traders are currently more focused on the implications of tighter monetary policy and inflation pressures,” said Jim Wyckoff, senior analyst at Kitco Metals.
The broader context underpinning gold’s recent rally involves three converging forces. Crude oil retreated below $90 per barrel as hopes for a ceasefire extension eased supply-disruption fears, reducing pressure on central banks to maintain aggressive interest rate hikes. The US dollar simultaneously slipped to a six-week low, making gold more affordable for holders of other currencies. Market expectations on monetary policy also shifted, with markets tempering expectations for tighter monetary policy as the Federal Reserve adopted a cautious stance in assessing inflation risks.
Traders now price in a 30% chance of a 25-basis-point US rate cut this year, up from around 13% the previous week. Rate cuts are typically bullish for gold since the metal yields no income and becomes more competitive as the opportunity cost of holding it falls.
The geopolitical backdrop, however, remains unsettled. The US military has imposed a naval blockade of ships leaving Iranian ports, and Tehran has threatened to retaliate against ports of its Gulf neighbours. Analysts caution that any breakdown in talks could rapidly reverse recent gains. Gold has fallen approximately 10% since the Iran conflict began, as higher interest rates have curbed demand for the non-yielding asset.
Among other precious metals, spot silver rose 0.8% to $80.15 per ounce, platinum gained 1.1% to $2,126.14, while palladium slipped 0.1% to $1,585.60.
