- Tensions reignited between the US and Iran over the weekend.
- Reports on Tuesday revealed that the US would not negotiate with Iran
- Futures markets are showing a 65% chance of a Fed hike as early as September.
Gold prices wallowed near lows hit in the previous session as traders worried about a fragile ceasefire deal between the US and Iran. At the same time, gold ended June in the red amid a surge in Fed rate hike expectations. Market participants are now eagerly awaiting the US nonfarm payrolls report for further clues on monetary policy.
Tensions reignited between the US and Iran over the weekend after a sudden exchange of fire. It created a cloud of uncertainty right after the two nations agreed to peace. Fortunately, by Monday, they had made up, agreeing to continue talks in Qatar.
However, as usual, reports on Tuesday revealed that the US would not negotiate with Iran in Qatar. The back and forth has become exhausting for many. Investors are oscilating between optimism over peace and uncertainty when such developments occur.
Nevertheless, the two nations have made progress by reopening the Strait of Hormuz. At the same time, the blockade on Iranian ports ended and the US lifted sanctions on their oil. Tehran even agreed to have its nuclear activities monitored. Still, a flare of hostilities could plunge the global market back to where it was at the height of the war.
“The markets are a little uneasy about how stable the memorandum of understanding is and there’s pressure on gold because people are not seeing much light at the end of the tunnel,” Marex analyst Edward Meir, said.
Gold (Source: Bloomberg)
For months, the tensions in the Middle East have weighed on the yellow metal. The closure of the Strait of Hormuz led to a spike in oil prices and inflation worries. As a result, the Fed shifted to a more hawkish stance.
The June FOMC meeting was particularly hawkish despite easing geopolitical tensions. Policymakers showed a willingness to hike rates more than once this year. After the meeting, futures markets are showing a 65% chance of a hike as early as September. Consequently, Treasury yields and the dollar rallied.
Meanwhile, the opportunity cost of holding gold increased because it is a non-yielding asset. Therefore, it fell. On Thursday, the US will release its crucial monthly employment report which will show the state of the labor market. Hot figures will be bearish for bullion while downbeat numbers would support the metal.