Gold Rebounds as Oil Prices Ease

Gold climbed back above $4,500 per ounce on Tuesday, recovering from the previous session’s losses as a pullback in oil prices helped temper inflation concerns, even as US-Iran peace negotiations remained deadlocked. On Monday, Iranian media reported that Tehran had suspended communications with Washington in response to Israeli attacks in Lebanon. Meanwhile, President Donald Trump said talks are still ongoing and indicated that a memorandum of understanding with Iran to reopen the Strait of Hormuz could be reached as soon as next week. Despite the easing in oil prices, markets continue to price in a Federal Reserve rate hike before year-end after US inflation accelerated, largely driven by the Middle East conflict. Investors are now awaiting Tuesday’s JOLTS job openings report ahead of the closely watched US monthly employment data on Friday for further insight into the Fed’s policy outlook.

Gold traded below $4,500 per ounce on Tuesday after declining in the previous session, pressured by stalled peace negotiations between the US and Iran that kept inflation risks and interest rate expectations at the forefront. On Monday, Iranian media reported that Tehran had suspended communications with Washington in response to Israeli attacks in Lebanon. Meanwhile, President Donald Trump said discussions are still ongoing and suggested that a memorandum of understanding with Iran to reopen the Strait of Hormuz could be reached as early as next week. Markets are currently factoring in a Federal Reserve rate hike before year-end after US inflation accelerated, driven in large part by the Middle East conflict. Investors are now awaiting this week’s US monthly jobs report and comments from Fed officials for additional clues on the future path of monetary policy.

Gold prices gave up early gains to fall to $4,470 per ounce in the first trading session of June, nearing their lowest level since late March. Escalating oil prices, driven by renewed Iran-US strikes and Iran’s decision to halt communications with the US in protest over Israel’s attacks on Lebanon, intensified inflation worries and strengthened expectations that central banks will keep interest rates higher for longer. Over the weekend, both sides exchanged proposals to revise a draft agreement to extend the ceasefire and reopen the Strait of Hormuz, though it remains unclear if any significant headway was made. Market participants now assign a roughly 60% probability to at least one US rate hike by the end of the year. Investors are turning their focus to this week’s US jobs data and upcoming remarks from Fed officials. In his first public comments since his term as Fed Chair ended on May 15, Governor Jerome Powell cautioned against the dangers of a politicized central bank.