Gold gains as oil drop lifts Fed hopes

Gold prices advanced by more than 1 per cent on Monday as a weaker dollar and a sharp fall in crude oil prices strengthened demand for bullion, with investors reassessing inflation risks and the likely course of US monetary policy amid signs of progress in Washington’s talks with Tehran.

Spot gold traded near $4,560 an ounce, extending gains after the dollar slipped against major currencies and oil benchmarks fell to two-week lows. The shift reflected a broader repricing across commodities and foreign exchange markets, as traders weighed the possibility that a diplomatic settlement could reopen the Strait of Hormuz and ease pressure on global energy supplies.

Brent crude dropped below $100 a barrel, while West Texas Intermediate moved towards $92, after expectations grew that US-Iran negotiations could produce an agreement to restore maritime flows through one of the world’s most important energy chokepoints. The strait carries a significant share of seaborne oil and liquefied natural gas trade, making any disruption a direct threat to fuel prices, shipping costs and inflation expectations.

The bullion market’s reaction was shaped less by a classic safe-haven surge and more by expectations that lower energy prices could reduce the need for the Federal Reserve to keep policy tight. Gold does not offer a yield, making it sensitive to interest-rate expectations. When investors see a lower probability of further rate increases, or a greater chance of eventual cuts, the opportunity cost of holding bullion falls.

President Donald Trump sought to temper market enthusiasm, saying Washington would not rush into a deal with Iran despite progress towards a memorandum of understanding. His remarks signalled that diplomacy remains fragile, even as markets moved quickly to price in a possible easing of supply risks. The US blockade on Iranian shipping and unresolved questions over nuclear commitments, sanctions relief and security guarantees continue to complicate negotiations.

The dollar’s weakness provided a second boost to gold. Since bullion is priced in dollars, a softer US currency makes it cheaper for holders of other currencies and often encourages international buying. The dollar fell against the yen, euro and pound as traders moved into risk-sensitive currencies and adjusted positions after the latest signals from the Middle East talks.

Other precious metals also gained, with silver, platinum and palladium rising as investors responded to the same combination of currency weakness, lower energy costs and shifting rate expectations. Silver’s stronger move reflected both investment demand and its industrial exposure, while platinum and palladium drew support from expectations that easing energy costs could improve margins in manufacturing and transport-linked sectors.

The latest move comes after weeks of volatility across gold and oil markets. Earlier setbacks in US-Iran talks had lifted crude prices and weighed on gold by reviving fears that expensive fuel would keep inflation elevated. That dynamic reversed as investors judged that a negotiated path, even one likely to take months, could eventually bring more oil into global markets and reduce pressure on household and business costs.

Kevin Warsh’s first days as Federal Reserve chair have sharpened attention on incoming inflation signals. The central bank faces a difficult balance: energy-driven inflation could justify caution, while falling oil prices may support calls for a less restrictive stance if broader price pressures ease. Market expectations remain fluid because tariffs, shipping disruption and geopolitical risk continue to cloud the inflation outlook.

For gold traders, the policy implications are central. A sustained fall in oil prices could help cool headline inflation and strengthen the case for lower borrowing costs later in the year. But if talks stall or the Strait of Hormuz remains constrained, crude could rebound, reviving inflation concerns and limiting gold’s upside through firmer yields and renewed dollar demand.