On Thursday, spot gold staged a dramatic reversal. After previously falling to a six-month low amid escalating Middle East tensions, gold prices surged sharply following reports that US President Donald Trump had canceled plans for military strikes against Iran. Spot gold ultimately closed up 3.4%, erasing all of Wednesday’s losses and reigniting investor enthusiasm for gold as a safe-haven asset.

Financial markets on Thursday focused almost entirely on the sudden easing of tensions in the Middle East. Earlier, Trump had threatened to launch major airstrikes against Iran and had even suggested targeting Kharg Island, Iran’s key oil export hub. Markets feared that an escalation of the conflict would drive oil prices higher and intensify global inflation pressures.

However, just hours before military action was reportedly set to begin, Trump announced that the operation had been canceled and delivered a major positive surprise: the United States and Iran could sign a peace agreement as early as this weekend, allowing shipping through the Strait of Hormuz to resume.

Trump revealed that the proposed agreement had already received approval from Iran’s senior leadership and enjoyed support from a broad range of regional players, including Israel, Saudi Arabia, the United Arab Emirates, and Qatar. Iran’s semi-official Fars News Agency also reported that Tehran was likely to approve the agreement, although no formal response had yet been issued.

The conflict, which has lasted for more than three months, has resulted in thousands of casualties and severely disrupted global energy supply chains. If finalized, the agreement would represent a major diplomatic breakthrough. It would not only ease Iran’s control over the Strait and end port blockades but could also pave the way for future negotiations regarding Iran’s nuclear program.

Although similar reports of imminent agreements have surfaced several times before only to collapse later, a successful deal this time would significantly help gold recover from its recent lows. Markets reacted swiftly to the change in tone: safe-haven demand faded rapidly while risk assets attracted strong buying interest.

The May Consumer Price Index (CPI) released on Wednesday showed inflation rising at its fastest pace in three years, driven largely by surging energy costs. Thursday’s Producer Price Index (PPI) also exceeded expectations, rising 1.1% month-on-month.

These inflation readings served as a reminder that the transmission effects of the Middle East conflict through energy markets have not fully disappeared and that inflationary pressures remain present.

Meanwhile, according to the CME FedWatch Tool, the probability of a Federal Reserve rate hike in December fell from 72% to 59% after Trump announced the cancellation of military action. Investors are now awaiting next week’s Federal Reserve meeting, the first to be chaired by new Fed Chair Kevin Warsh. Markets broadly expect policymakers to leave interest rates unchanged.

Under these conditions, gold’s dual role as both an inflation hedge and a safe-haven asset has been fully demonstrated. Even if a peace agreement moves forward, it may still take months for oil markets to return to normal conditions. The inflationary effects of previous energy disruptions are likely to continue influencing the monetary policy outlook, providing longer-term support for gold prices.

Market Analysis:

Gold surged sharply on the 4-hour chart, with both the MACD lines and histogram recovering toward the zero line.

If a peace agreement is finalized quickly and oil prices continue to decline, gold could gradually establish a more stable footing. Conversely, if Middle East tensions deteriorate again, gold may face renewed short-term pressure.

However, under the current macroeconomic backdrop, downside risks for gold appear limited, while its upside potential remains attractive. For investors, the longer-term outlook for the precious metal continues to warrant close attention.