“The slowdown in geopolitics has offered an opportunity for investors to start taking profit because of the forward-looking prospects of some kind of kinetic war with China and the developments in the Middle East,” said Daniel Pavilonis, senior market strategist at RJO Futures.
Global shares rallied following the announcement, with risk assets gaining ground as traders rotated away from precious metals.
Can Middle East Stability Hold?
The ceasefire agreement between Iran and Israel continues to hold despite minor skirmishes at the start. This ongoing stability in the Middle East further reduces gold’s geopolitical premium, as supply disruption fears across energy and commodity markets fade.
The combination of cooling U.S.-China tensions and sustained Middle East calm creates a challenging environment for gold bulls who have relied on crisis premiums to drive prices higher.
How Did Hot Inflation Data Impact Gold?
Gold was already under pressure from easing geopolitical tensions when Friday’s PCE report delivered a devastating one-two punch. Core inflation surged to 2.7% – well above the Federal Reserve’s 2% target – while personal income plummeted 0.4%.
The hot inflation print crushed any remaining hopes for aggressive Federal Reserve easing, with Treasury yields climbing higher and the dollar strengthening further. Markets that were already down before the PCE release fell even harder as the data confirmed the Federal Reserve’s higher-for-longer stance.
