- Qatar sent mediators to Iran on Sunday to restart talks between the country and the US.
- Oil prices pulled back, sending yields lower and allowing gold prices to climb.
- There is an 80% chance of a Fed rate hike in December.
Gold recovered on Monday and Tuesday after a bearish week as traders applauded the resumption of indirect talks between the US and Iran. Oil prices fell, easing inflation worries and concerns about higher global borrowing costs. However, market participants turned cautious early Wednesday ahead of the FOMC policy meeting.
Spot gold (Source: Bloomberg)
Reports revealed that Qatar sent mediators to Iran on Sunday to restart talks between the country and the US. This attempt to foster peace came after Trump said the US and Israel were planning a heavy attack on Iran soon after the November midterm elections. The resumption of talks, though indirect, has rekindled hopes for peace.
However, recent remarks still point to hard stances for both countries. For instance, Trump said on Tuesday that the war would end when he wanted it to end. The statement lowers the likelihood that the two will agree on a peaceful end to the war. Nevertheless, the war is heavily burdening both economies, giving them a good reason to end it.
Consequently, oil prices pulled back, sending yields lower and allowing gold prices to climb. Still, prices remain elevated and could stay that way as long as the war in the Middle East continues.
“Softer oil prices will probably provide some lift for gold because it relieves the inflation worries and arguably moderates Fed hawkishness to some degree,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.
“I think the market is just merely trading at this point off Middle East headlines and ongoing negotiations,” Grant added.
Meanwhile, gold traders are gearing up for several major central bank meetings this week. These include the Fed, the Bank of Canada, the European Central Bank and the Bank of Japan. All of these banks, except the BoC, are likely to keep interest rates unchanged. However, the message at these meetings will shape the outlook for future policy moves. Hawkish remarks would weigh on the non-yielding gold. On the other hand, cautious tones would boost the yellow metal.
Market participants expect the Fed to hold rates on Wednesday. However, there is an over 80% chance that policymakers will hike in December. Traders will also pay attention to the core PCE price index report for cues on the state of underlying inflation.
