Gold Rises Slightly as Market Weighs US-Iran Signals and Oil Moves
Spot gold strengthened in trading on Tuesday (June 2nd), as market participants assessed conflicting signals from the United States and Iran regarding the prospects for diplomacy amid renewed tensions around the Strait of Hormuz. Gold prices briefly rose more than 1% to reach $4,532 per ounce, before paring some of their gains and remaining higher than the previous session.
The uncertainty has yet to ease. US President Donald Trump stated that talks with Iran are proceeding "rapidly," while dismissing Tehran's threats to suspend diplomacy and completely close the strategic waterway. At the same time, differing statements between Trump and Israeli Prime Minister Benjamin Netanyahu regarding discussions about the fighting in Lebanon added to market confusion regarding the direction of negotiations to de-escalate the conflict, which has entered its fourth month.
In terms of fundamental transmission, gold's movement is again sensitive to oil. After recording its biggest daily gain in about a month, oil prices fell on Tuesday. This correction in oil prices also provided room for gold to strengthen as oil influences inflation expectations. Inflation expectations then shape the market's view on interest rates, yields, and dollar movements—three factors that typically determine the direction of gold prices.
Although often viewed as a safe haven asset, gold has not entirely followed the classic "risk-off" pattern during this episode. Since the conflict began in late February, gold has fallen sharply and remains around 14% below pre-war levels. In recent weeks, its movement has also tended to be range-bound, indicating that the market is still awaiting confirmation of the dominant narrative.
The next focus is on the resumption of energy and trade flows through Hormuz. If the risk of disruption subsides, inflationary pressures could potentially ease, opening up room for monetary policy easing. This theoretically supports gold because the opportunity cost of holding a non-yielding asset is lower. However, that room for easing may be limited by US data: manufacturing activity in May reportedly expanded at the fastest pace in four years, bolstering the argument that the Federal Reserve has less reason to cut interest rates immediately.
At 2:13 p.m. in Singapore, the spot gold price rose 0.8% to $4,520.83 per ounce. The Bloomberg Dollar Spot Index fell 0.1%. Silver rose 2.2% to $76.51 per ounce, while platinum and palladium also strengthened. Looking ahead, gold's direction will likely remain determined by two key anchors: diplomatic and security developments in the Middle East, and changes in US interest rate expectations influenced by activity and inflation data. (asd)*
5 Key Points:
- Spot gold edged up as the market assessed inconsistent US-Iran signals and risks in the Strait of Hormuz.
- Correction in oil prices provided additional support for gold through inflation and interest rate expectations.
- Gold remains around 14% below pre-war levels and has been moving within a narrow range in recent weeks.
- The likelihood of monetary easing improves if the Hormuz risk subsides, but strong US manufacturing data limits expectations of interest rate cuts.
- Monitored variables: Hormuz stability, developments in the Lebanon/Israel conflict, oil prices, the US dollar, and changes in the Fed's expectations.
Source: Newsmaker.id
