Gold Rebounds Sharply on US-Iran Deal Hopes, Weaker Dollar, and Falling Yields
$Gold - main 2606(GCmain)$Gold prices rebounded sharply from their intraday lows on Thursday (May 21), primarily driven by a plunge in oil prices triggered by news related to the US-Iran agreement. Additionally, a pullback in the US dollar and a decline in US Treasury yields also contributed to the gold price rebound.
Gold prices recovered in the middle of Thursday's North American trading session after Al Arabiya reported that Pakistani mediators had reached an agreement on a final draft of the US-Iran deal, scheduled for release within hours.
During Thursday's New York session, gold prices rebounded sharply from their intraday low of $4488.21, briefly approaching $4560 per ounce.
At the close of trading on Thursday, gold was at $4543.04 per ounce, almost unchanged from the previous trading day's close; prices had fallen as much as 1% during the session.
Major News in US-Iran Agreement
According to a draft disclosed by Iran's ILNA news agency on Thursday, the agreement includes an immediate and comprehensive ceasefire on all fronts, and both sides pledged not to target each other's infrastructure.
Furthermore, the agreement will ensure freedom of navigation in the Persian Gulf and the Strait of Hormuz, lift US sanctions against Iran, and initiate negotiations on outstanding issues within seven days at the latest.
Earlier reports indicated that Iran's Supreme Leader had issued an order prohibiting the export of enriched uranium. However, Al Jazeera subsequently denied that the Supreme Leader had issued such an order, calling it "propaganda by forces opposing the agreement." Fox News also cited sources directly involved in the negotiations as saying that the White House similarly denied the report.
Affected by news of the draft agreement, oil prices fell sharply, with West Texas Intermediate (WTI) crude falling by more than 2% to below $97.50 per barrel. The US dollar gave back its earlier gains, with the Dollar Index (DXY) essentially flat at 99.13.
The narrowing of the dollar index's gains made gold relatively attractive to investors holding foreign currencies.
Meanwhile, the 0.2% decline in the 10-year US Treasury yield also reduced the opportunity cost of holding non-interest-bearing assets like gold.
While gold is also seen as a hedge against inflation, its price typically struggles to rise in a high-interest-rate environment.
"Rising oil prices will fuel inflation, prompting central banks to keep interest rates unchanged or even increasing the likelihood of rate hikes. This remains bearish for gold in the short term."
Gold prices have fallen by more than 14% since the start of the war in late February.
US Data and Fed Officials' Speeches
From a macroeconomic perspective, in the week ending May 16, initial jobless claims in the US fell to 209,000 from 212,000 the previous week, lower than the market expectation of 210,000. S&P Global also reported that US manufacturing activity strengthened in May, with related indices reaching a four-year high. The manufacturing Purchasing Managers' Index (PMI) rose to 55.3 from 54.5 in April, mainly as businesses actively increased inventories to guard against potential supply shortages and rising prices.
Minutes from the Federal Reserve's last meeting, released Wednesday, revealed divisions within the policy committee. While a majority of members favored maintaining interest rates, some indicated they would consider raising rates if the energy supply shocks caused by the Iran war persisted.
Richmond Fed President Thomas Barkin expressed concern about the potential extreme risks at both ends of the Fed's "dual mandate." However, he maintained a neutral stance, emphasizing that he did not favor either side of the mandate, adding, "The current policy posture is perfectly adequate to handle any shocks that are currently occurring."
Chicago Fed President Austan Goolsbee made hawkish comments in an interview with WBEZ Chicago radio. He stated that he is currently "closely monitoring the inflation side, because we had made progress in combating inflation, but that progress has since stalled."
CME's FedWatch tool shows that traders now estimate a 58% probability of at least a 25 basis point rate hike by the Fed this year, up from 48% the previous day.
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