Gold Edges Up as Oil Slump Eases Inflation Fears — But Rate Expectations Limit Gains

Spot gold rose 0.6% to $4,076.80/oz on Monday, while gold futures gained 0.2% to $4,079.00/oz, as a pause in U.S.-Iran military activity pushed oil prices lower and eased near-term inflation concerns.

The advance followed Friday's rebound after a two-week losing streak. Market participants attributed part of the recovery to technical factors, while analysts said sentiment toward bullion remains cautious amid ongoing uncertainty surrounding monetary policy.

Another Key Factor: Markets Reflect Expectations for Higher Rates

Unlike many recent Federal Reserve meetings, this week's policy decision comes amid relatively mixed market expectations.

According to the CME FedWatch Tool, markets currently assign roughly a 62% probability that the Federal Reserve will leave interest rates unchanged, while also pricing in about a 35% probability of a rate increase.

Macquarie Chief Economist David Doyle expects the Fed to maintain its policy rate within the 3.5%–3.75% range at this meeting but believes any future policy adjustment is more likely to be an increase, with December viewed as one possible timeframe.

These expectations may continue to influence gold prices alongside changing inflation expectations following recent developments in the Middle East.

Oil-Driven Inflation Context

1. Brent and WTI crude oil prices had risen by around 20% over the previous two weeks following U.S.-Iran military activity near the Strait of Hormuz.
2. The recent pause followed reports that President Trump halted additional military escalation, partly because of concerns over U.S. air-defense stockpiles.
3. Earlier attacks on Saudi oil tankers near the Bab el-Mandeb Strait had also contributed to concerns about global energy supplies.

This Week's Key Events for Gold

1. Second-quarter U.S. GDP
2. June PCE Price Index, the Federal Reserve's preferred inflation measure
3. FOMC policy statement and any dissenting votes, which Doyle identified as important indicators for future policy expectations
4. Comments from Federal Reserve Chair Kevin Warsh, whose recent policy remarks have been closely monitored by financial markets

Market Focus

Gold's recent rebound coincided with easing geopolitical tensions and lower oil prices, while expectations for future Federal Reserve policy continue to influence market sentiment. Upcoming inflation data, the Federal Reserve's policy statement, and related commentary may all affect short-term movements in gold prices as markets assess the outlook for interest rates.