Markets have pared back expectations for a Fed rate hike in December to 60 per cent from around 70 per cent earlier. (File Photo)

Gold rallies, oil prices retreat on optimism over US-Iran peace deal

Gold rose on Tuesday after an interim US-Iran deal eased pressure on oil prices. Lower inflation fears also reduced expectations of a Federal Reserve rate hike later this year.

by · India Today

In Short

  • Gold prices rose over 1% on eased US Fed rate hike fears
  • Brent crude fell below $80 a barrel after peace announcement
  • Markets await Fed rate decision amid reduced hike expectations

Gold prices rose more than 1 per cent on Tuesday as expectations of an interest rate hike from the US Federal Reserve this year eased, following an interim US-Iran peace deal that sent oil prices and inflation fears lower.

Spot gold XAU= was up 0.3 per cent at $4,318.89 per ounce as of 10:30 AM ET (1430 GMT). Prices touched their highest level since June 5 in the previous session.

US gold futures GCcv1 delivery added 0.2 per cent to $4,358.90.

The interim deal announced by US President Donald Trump would extend a tenuous ceasefire agreed upon in April by another 60 days and reopen the Strait of Hormuz, which Iran has effectively blocked since the US and Israel attacked Iran in February.

"Supporting the market over the last two sessions has been the prospects of an agreement between the US and Iran in regards to ending the war," said David Meger, director of metals trading at High Ridge Futures.

"What we've seen as a result of that has been short-term interest rates drop, energy prices come down, and less likelihood that the Fed will need to raise interest rates later this year."

Brent crude futures LCOc1 have dropped below $80 a barrel for the first time since early March, after sinking nearly 5 per cent on Monday after the announcement of the interim deal.

Markets have pared back expectations for a Fed rate hike in December to 60 per cent from around 70 per cent earlier, according to the CME FedWatch tool.

Bullion has been under pressure since the onset of the US-Israeli war against Iran, as rising oil prices fuel expectations of prolonged high interest rates. Despite being an inflation hedge, non-yielding gold suffers in a high interest rate environment.

Market participants are now awaiting a series of central bank meetings this week, including the Fed's rate decision on Wednesday, the first under new Chair Kevin Warsh.

- Ends