Spot gold climbed higher during Asian trading on Wednesday, August 5, reaching a new high since July 24 at $4,136.41 per ounce around 12:05, marking a gain of approximately 1.45%. The decline in inflation expectations triggered by a sharp drop in oil prices, linked to the easing of geopolitical tensions from US-Iran talks, is driving the market to lower its bets on Federal Reserve rate hikes. This cooling of rate hike expectations is providing stronger upward support for gold.
According to recent media reports, US President Donald Trump described discussions with Iran as "very constructive," stating that the Strait of Hormuz "will open very soon," while warning of significant consequences if Iran reneges. US Secretary of State Marco Rubio noted on Tuesday that talks with Iran and Oman regarding allowing more vessels through the Strait of Hormuz have made progress, though a final agreement has not yet been reached. US Treasury Secretary Scott Bessent was more optimistic, suggesting Washington could reach a deal with Tehran to reopen this critical waterway as early as Tuesday or Wednesday. Meanwhile, the Qatar Foreign Ministry stated that efforts to resolve the US-Iran conflict "have entered a very advanced stage," with a draft of a potential agreement "being circulated," though no direct negotiations are occurring between the two sides. This statement confirms the diplomatic push by mediators but also highlights the awkward reality of a lack of direct communication between Iran and the US. For gold, the easing of US-Iran tensions reduces demand for safe-haven assets, while the inflation expectations cooling, driven by a more than 6% plunge in oil prices yesterday, is becoming a more dominant pricing factor—the accelerated decline in market expectations for Fed rate hikes offers more substantial upward support for gold.
However, the easing of geopolitical tensions is not the sole driver for gold prices. Market expectations for Federal Reserve policy are also playing a role. Positive signals from US-Iran talks have driven crude oil prices lower, alleviating concerns about energy-driven inflation. As a result, traders have reduced their bets on further Fed rate hikes. According to the CME FedWatch Tool, the market currently prices in about a 60% probability of a 25-basis-point rate hike by the Fed at its September meeting, lower than levels before the July meeting. For the zero-yield asset gold, the retreat in rate hike expectations provides significant support. A leading global commodity strategist from TD Securities noted, "Any data showing economic weakness could be beneficial for gold, primarily because it reduces the likelihood or necessity of central banks taking action on interest rates."
ING strategists pointed out that gold's recent rebound remains constrained by conflicting factors, with the price "likely to continue to struggle between improving geopolitical sentiment and persistent uncertainty about US interest rates." While the easing of Middle East tensions and cooling inflation pressures have supported gold's recent rally, expectations of higher US interest rates for a longer period continue to limit gold's further upside. This assessment accurately summarizes the current core contradiction for gold: the decline in safe-haven demand due to geopolitical easing, offset by the reduced interest rate pressure from falling Fed rate hike expectations, with these two forces offsetting each other, keeping gold prices in a range-bound oscillation.
In its latest research report, JPMorgan lowered its gold price forecast for the third quarter to $4,300 per ounce and for the fourth quarter to $4,500 per ounce. The main rationale is weaker-than-expected performance in key demand sectors, including investors and some physical buying, coupled with the increased risk of the Fed raising rates prematurely due to potentially overheating data. JPMorgan stated that the risks are tilted to the downside. Despite short-term pressure, the institution maintains a constructive long-term view, expecting that central bank gold purchases and structural allocation demand could accelerate again by 2027, driving gold prices higher. In the current environment, high interest rates are clearly suppressing non-yielding assets, and gold needs clearer policy direction or a revival in demand to regain strength.
The US-Iran talks have released positive signals, and if a temporary agreement on the Strait of Hormuz is officially confirmed, it would further push oil prices lower and cool inflation, thereby strengthening the market's expectation of lower Fed rate hikes—this logic is becoming the core driver for gold's strength. Looking ahead, the US nonfarm payrolls report on Friday will be a key variable. If the data is weak, rate hike expectations will further cool, opening upside space for gold. If the data is strong, it could lead to a correction in rate hike expectations, putting gold prices under pressure to pull back.
As of 12:05 Beijing time on August 5, spot gold was trading at $4,134.33 per ounce.
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