Gold price (XAU/USD) traded in positive territory near $4,240 during the early Asian session on Friday, rebounding from a six-month low after US President Donald Trump announced he had canceled planned military strikes against Iran. This development has fueled hopes that a US-Iran truce deal may be close, although Iran stated that a final agreement has not yet been reached [1]. The BBC reported that negotiations with Tehran were 'brought to the highest level of Iranian leadership and approved,' according to Trump, but Iran maintains that no final conclusion has been achieved regarding an agreement [1].
The prospect of a diplomatic resolution to the US-Iran conflict, which has rattled global markets, has led to a decline in US Treasury yields and the US Dollar (USD). This has supported the price of gold, as the precious metal is denominated in USD and often benefits from a weaker dollar environment [1]. Independent analyst Ross Norman commented, 'Gold is clearly significantly oversold just now, and it remains to be seen whether this is a recovery as such or simply short positions taking profit' [1].
Despite the rebound, the upside for gold may be limited. Elevated crude oil prices could accelerate inflation and keep interest rates higher for longer, which would make gold less attractive since it does not yield interest. The Federal Reserve is expected to leave rates unchanged in Kevin Warsh’s first meeting as Fed chair next week, but traders are now pricing in nearly a 67% probability of a US rate hike in December, according to the CME FedWatch tool [1].
Gold is widely seen as a safe-haven asset during turbulent times and is often used as a hedge against inflation and depreciating currencies. Central banks, particularly from emerging economies such as China, India, and Turkey, have been increasing their gold reserves, with central banks adding 1,136 tonnes of gold worth around $70 billion to their reserves in 2022, the highest yearly purchase since records began, according to the World Gold Council [1].
CONCLUSION
Gold prices have rebounded from recent lows amid easing US-Iran tensions and a weaker US Dollar, though upside may be capped by inflationary pressures and expectations of higher interest rates. Market participants are closely watching diplomatic developments and the upcoming Federal Reserve meeting for further direction.