[TMGM Financial Breakfast] Bulls and Bears Split as Oil Slumps, Giving Gold Room to Breathe Ahead of Key Fed Meeting
On Monday, U.S. President Donald Trump told reporters aboard Air Force One that the United States had sufficient patience to negotiate a new agreement with Iran. Following his remarks, spot gold gapped higher by nearly US$40 at the open. Meanwhile, crude oil futures tumbled more than 8%, falling below the US$90 per barrel mark.
The sharp divergence between gold and oil highlights the deep contradiction currently shaping the precious metals market. While easing geopolitical tensions would normally weaken safe-haven demand, the collapse in oil prices has cooled inflation expectations, creating a more supportive environment for gold. The precious metal now sits at the center of multiple competing forces, including the pause in the U.S.-Iran conflict, the sharp decline in oil prices, a stronger U.S. dollar, and the Federal Reserve's upcoming interest rate decision.
Over the past two weeks, tensions in the Gulf region intensified significantly. The United States carried out airstrikes against Iran for 13 consecutive nights, while Iran retaliated by targeting U.S. military bases across the Middle East. The latest round of conflict began on February 28, less than one month after both sides signed a memorandum of understanding on June 17. However, the situation took a dramatic turn last Friday. Just hours after President Trump threatened an unprecedented large-scale military strike against Iran, the region's top military commander reportedly recommended suspending the bombing campaign, believing its objectives had largely been achieved. Iran subsequently responded by stating that it would maintain the ceasefire as long as the United States continued to pause military operations.
These developments have become the key narrative driving short-term movements in the gold market. After five months of conflict, renewed hopes for a diplomatic resolution triggered a broad selloff in crude oil. Although gold is traditionally viewed as an inflation hedge, its relationship with inflation is far from straightforward. Rising oil prices tend to increase inflation expectations, prompting markets to anticipate additional Federal Reserve rate hikes. Higher interest rates, in turn, raise the opportunity cost of holding non-yielding assets such as gold, placing downward pressure on bullion prices.
Following the ceasefire proposal put forward by mediators in the U.S.-Iran conflict, expectations of easing tensions pushed oil prices lower, reducing energy-driven inflation pressures. This also eased market concerns that the Federal Reserve may need to tighten monetary policy further, providing support for gold prices.
Meanwhile, data released Monday by the U.S. Department of Commerce showed that core durable goods orders rose 0.9% month-over-month in June, slightly above economists' expectations of 0.8%. The stronger-than-expected data suggests that continued investment in artificial intelligence is helping offset the economic impact of the U.S.-Iran conflict and tariff measures. Solid economic performance has reinforced confidence in the resilience of the U.S. economy while giving the Federal Reserve additional justification to keep interest rates elevated.
Market Insight:
The biggest uncertainty facing the gold market now is the Federal Reserve policy meeting scheduled for July 28–29. The outcome will likely determine gold's near-term direction. If the Fed leaves interest rates unchanged, precious metals could see a sharp relief rally. However, an unexpected rate hike or a more hawkish policy outlook could place renewed downward pressure on gold prices.
