Gold (XAU/USD) rallied to an over two-week high, trading around $4,140-$4,141 during the Asian session on Wednesday, as traders tracked ongoing US-Iran diplomacy efforts and rising geopolitical tensions in the Middle East. Top negotiators from both the US and Iran indicated that talks had not broken down, with US Secretary of State Marco Rubio expressing openness to further negotiations and Iran's Interior Minister Eskandar Momeni seeking mediation from Pakistan. Despite these diplomatic overtures, the US military completed its 11th consecutive night of strikes on Iran, targeting aircraft hangars and drone storage sites, while President Donald Trump warned of intensified strikes against any Iranian nuclear rebuild efforts. Iran responded with attacks on US military assets in Bahrain, Kuwait, and Jordan, and claimed to have struck two oil tankers in the Strait of Hormuz. Additionally, Yemen's Iran-aligned Houthis declared a naval blockade against Saudi Arabia, further heightening regional risks [1].
Silver (XAG/USD) also gained for the fourth straight day, trading near $59.70 per troy ounce. The surge in silver prices is attributed to institutional investors seeking safe-haven assets amid escalating geopolitical tensions and surging inflation fears. Despite rising rate-hike expectations, these market forces have outweighed the typical drag of higher interest rates on non-yielding metals like silver. US President Donald Trump downplayed the likelihood of immediate negotiations with Tehran following mutual military strikes and threats from Iran-backed Houthi militants to disrupt Red Sea shipping routes. Trump pledged to respond if the group interfered with the waterway, while Iran's military command warned of expanded strikes against US and allied assets if Iranian nuclear facilities are targeted [2].
The closure of the Strait of Hormuz and the broader regional conflict risk have pushed crude oil prices to their highest levels since June 12, fueling concerns about energy-driven inflation. This has led to elevated expectations for further US Federal Reserve tightening. The CME Group's FedWatch Tool shows traders pricing in an 88% chance of at least one Fed rate hike by year-end, according to one source [1], while another source reports over 71% odds of a 25 basis-point hike at the September meeting [2]. Fed Chair Warsh and other officials have emphasized that inflation remains a key concern, and policymakers have entered a blackout period ahead of next week's FOMC meeting, where the federal funds rate is widely expected to remain unchanged [2].
Analysts at OCBC suggest that gold is likely to experience 'two-way' trading in the near term, with any rebound facing headwinds from high oil prices, elevated real yields, and persistent Fed tightening expectations. They caution that a more sustained recovery in gold would require a pullback in oil prices, easing real yields, and softer Fed expectations. Technical indicators for gold remain strong, with the Relative Strength Index (14) near overbought territory at 69.9, and a breakout above the 200-SMA on the 4-hour chart could accelerate gains [1].
CONCLUSION
Both gold and silver have rallied amid heightened US-Iran tensions and inflation fears, with investors seeking safe-haven assets. However, persistent expectations for further Fed tightening and elevated oil prices may cap further upside in precious metals. Market participants remain cautious as geopolitical risks and monetary policy developments continue to drive volatility.