Gold Set for Steepest Monthly Drop in Over 17 Years as US Rate-Cut Hopes Dim
Gold prices edged higher on Tuesday, supported by optimism over a potential de-escalation in the Middle East conflict. However, the precious metal is poised for its most severe monthly decline in more than 17 years, as a robust US dollar and diminishing prospects for an American interest-rate cut this year continue to pressure its value.
Spot gold gained 1.5% to $4,578.89 per ounce as of 0235 GMT, while US gold futures for April delivery rose 1.2% to $4,611.30. This intraday increase occurred alongside a slight weakening of the dollar, which generally makes dollar-denominated commodities more attractive to holders of other currencies.
The rally was sparked by a report that US President Donald Trump has indicated a willingness to end the military campaign against Iran, even if the Strait of Hormuz remains largely closed. According to Ilya Spivak, head of global macro at Tastylive, this triggered a risk-on response across financial markets.
Spivak observed that gold has been stabilizing for about a week, with a particularly strong rally last Friday that coincided with falling Treasury yields. This pattern suggests markets are starting to interpret the Iran conflict as a recession risk, which could underpin gold's safe-haven status.
Despite the recent rebound, bullion has dropped more than 13% so far this month, marking its steepest fall since October 2008. The decline has been driven by a firmer dollar and fading bets on Fed rate cuts. Still, gold remains up approximately 5% for the quarter, reflecting earlier gains fueled by geopolitical tensions.
Traders have nearly fully priced out any possibility of a Federal Reserve rate cut in 2024, as higher energy prices threaten to stoke broader inflation. Gold, a non-yielding asset, typically performs better in low-interest-rate environments. Prior to the Middle East war, the CME Group's FedWatch tool had indicated expectations for two rate cuts this year.
Fed Chair Jerome Powell said on Monday that the central bank can afford to wait and assess how the Iran conflict impacts the economy and inflation, noting that policymakers usually look through temporary shocks such as those from rising oil prices.
In other precious metals, spot silver rose 3.3% to $72.27 per ounce, spot platinum gained nearly 1% to $1,916.77, and palladium increased 2.3% to $1,437.76.
