Gold softens as firm US Dollar, higher yields and rising Fed hike bets weigh
LONDON (May 19) Gold (XAU/USD) trades on the back foot on Tuesday as traders closely monitor developments surrounding the US-Iran negotiations and amid a broad macroeconomic background linked to the prolonged conflict that continues to weigh on the precious metal. At the time of writing, XAU/USD is trading around $4,544, hovering near the one-and-a-half-month low of $4,480 touched on Monday.
US President Donald Trump said on Monday that he had halted an immediate planned military attack on Iran after requests from Gulf leaders to allow peace negotiations to continue. In a post on Truth Social, Trump said ongoing negotiations could lead to a deal that would be “very acceptable” for the United States and the Middle East, adding that the agreement would ensure “no nuclear weapons for Iran.”
However, Trump also warned that he had instructed the US military to remain prepared for a “full, large-scale assault” on Iran at a moment’s notice if an acceptable agreement is not reached.
Investors remained cautious over whether a lasting peace deal could actually be reached as disagreements over Iran’s nuclear programme continue to complicate negotiations.
While geopolitical uncertainty would typically support bullion, Gold remains down nearly 15% since the war began, as markets increasingly focus on the inflationary impact of surging Oil prices amid the continued disruptions around the Strait of Hormuz.
Higher crude Oil prices are already pushing inflation higher across major economies, reinforcing expectations that central banks, particularly the US Federal Reserve (Fed), may need to raise interest rates. According to the CME FedWatch Tool, traders are now pricing in nearly a 50% probability that, by the end of the year, the Fed will have increased rates by at least 25 basis points. This is a significant increase compared with the 35% probability seen a week ago.
Rising inflation concerns have triggered a broad sell-off in global bond markets in recent days, pushing sovereign bond yields sharply higher. On Tuesday, the benchmark US 10-year Treasury yield hovers near 4.60%, close to its highest level in one year.
Elevated Treasury yields increase the opportunity cost of holding non-yielding assets such as Gold.
Meanwhile, the US Dollar (USD) remains supported by hawkish Fed expectations and persistent uncertainty surrounding the US-Iran talks, further limiting upside momentum in bullion by making the precious metal more expensive for foreign buyers.
Looking ahead, a relatively quiet US economic calendar on Tuesday leaves markets focused on Fed commentary and upcoming releases, including the Fed meeting minutes on Wednesday, preliminary May Purchasing Managers Index (PMI) data on Thursday and the University of Michigan Consumer Sentiment survey on Friday.
FXStreet
