Early trading on Tuesday during the Asian market session saw gold holding steady as traders stayed cautious after Israel and Iran announced a temporary truce in their conflict. Traders are unsure whether the ceasefire will hold, and they are also watching for CPI data due to be released in the U.S. on Wednesday.
The anticipated inflation data for the month of May will give traders pointers about the likely policy direction of the U.S. Fed regarding to interest rates. This inflation data is taking on greater importance because recently released employment data showed resilience and employers were hiring at a higher rate than had previously been expected.
If the report shows that inflation is still running hot, then the Fed is at the very least likely to leave interest rates unchanged or even consider hiking lending rates in a bid to keep inflation from accelerating.
For now, traders see a 70% likelihood of the benchmark lending rate being raised by the Fed this year, which would further weigh on gold since the opportunity cost of holding the precious metal would be high because gold doesn’t offer any return to its holders. If interest rates stay the same, gold prices would still remain under pressure as investors could opt to reallocate their money into other asset classes that offer a return.
In the Middle East, Iran and Israel announced that they had agreed on a temporary cessation of hostilities. Both sides said they made that decision on the prompting of President Trump. However, Iran said it would quickly abandon that ceasefire if Israel launched any further attacks against Lebanon in its war against Iran-allied Hezbollah.
With such rhetoric coming from Tehran, it is unclear whether the truce will hold and how long the lull in hostilities will last. Traders are keeping tabs on this situation in order to decide what positions to enter in gold trading.
Spot gold was trading at about $4,332 an ounce during the Tuesday session while August futures were going for $4,357 an ounce. This was a decline of approximately 0.1% from the price at which these futures were trading during the previous session.
Goldman Sachs projects that lending rates in the U.S. are likely to remain unchanged for the rest of this year and the next reduction will happen in 2027. This is due to rising employment figures and resilience in economic activity within the U.S.
The Israel-Iran truce will be the focus of traders as it could determine the direction of peace talks between Iran and the U.S. Expected inflation data for May is also an important news item to watch for, and gold industry participants like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) will be awaiting this report.
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