On Wednesday (August 5th) during the Asian session, spot gold fluctuated higher, reaching a new high since July 24th at $4136.41 per ounce as of 12:05, a gain of approximately 1.45%. The US-Iran negotiations weakened geopolitical safe-haven buying, and the cooling inflation expectations triggered by the oil price plunge are pushing the market to lower its bets on a Federal Reserve rate hike. This cooling of rate hike bets provides stronger upward support for gold.

Progress in US-Iran negotiations: Geopolitical risk premiums face clearing

According to the latest media reports, US President Trump stated that discussions with Iran are "going very smoothly," and the Strait of Hormuz will "open soon," warning that Iran will "suffer a major blow" if it reneges on its promises. US Secretary of State Rubio stated on Tuesday that discussions with Iran and Oman regarding allowing more ships to pass through the Strait of Hormuz have made progress, but a final agreement has not yet been reached. US Treasury Secretary Bessant was more optimistic, saying that Washington could reach an agreement with Tehran as early as Tuesday or Wednesday to reopen this crucial waterway. Meanwhile, the Qatari Foreign Ministry stated that efforts to resolve the US-Iran conflict "have entered a very advanced phase," and a draft of a potential agreement is "being circulated," but no direct negotiations have taken place between the two sides. This statement confirms that the mediators are pushing forward the diplomatic process, but also highlights the awkward reality of a lack of direct communication between the US and Iran. For gold, the easing of tensions between the US and Iran has weakened geopolitical safe-haven demand. The over 6% plunge in oil prices yesterday, triggering expectations of cooling inflation, is becoming a more dominant pricing factor—the accelerated decline in market expectations for a Fed rate hike is providing more substantial upward support for gold.

Potential support for gold

However, the easing of geopolitical tensions is not the only driver of gold prices. Market expectations regarding Federal Reserve policy are also at play. Positive signals from US-Iran negotiations pushed down oil prices, easing market concerns about energy-driven inflation. As a result, traders reduced their bets on further Fed rate hikes. According to the CME FedWatch tool, the market is currently pricing in a 60% probability of a 25 basis point rate hike at the Fed's September meeting, lower than before the July meeting. For gold, a zero-yield asset, the decline in rate hike expectations provides significant support. The global head of commodities strategy at TD Securities noted, "Any data showing economic weakness is likely to be beneficial for gold, mainly because it reduces the likelihood or necessity for central banks to take interest rate action."

Institutional Views

Strategists at renowned firm ING pointed out that the recent rebound in gold prices remains constrained by conflicting factors, with prices "likely to continue struggling between improved geopolitical sentiment and persistent uncertainty surrounding US interest rates." While easing tensions in the Middle East and reduced inflationary pressures have supported the recent gold price rebound, expectations of persistently high US interest rates continue to limit further upside potential. This assessment accurately summarizes the core contradiction currently facing gold: declining safe-haven demand due to geopolitical easing and reduced interest rate pressure from waning expectations of a Fed rate hike are offsetting each other, causing gold prices to trade within a range. JPMorgan Chase's latest research report lowered its Q3 gold price forecast to $4,300/oz and Q4 to $4,500/oz. The main basis for this is weaker-than-expected performance from key demand sectors (including investors and some physical buying), coupled with an increased risk of the Fed raising rates prematurely due to overheated data. JPMorgan Chase stated that the risks are skewed to the downside. Despite short-term pressure, a constructive long-term view is maintained, believing that central bank gold purchases and structural allocation demand are likely to accelerate again in 2027, driving gold prices higher once more. In the current environment, high interest rates are clearly suppressing non-interest-bearing assets, and gold needs to wait for a clearer policy path or a recovery in demand before it can regain its strength.

Summarize

Positive signals from US-Iran negotiations, coupled with the potential formal confirmation of a temporary agreement on the Strait of Hormuz, could further drive down oil prices and cool inflation, thereby reinforcing market expectations of a Fed rate hike – a logic that is becoming the core driver of gold's strength. Looking ahead, Friday's US non-farm payroll report will be a key variable – weak data will further cool rate hike expectations, opening up upside potential for gold; strong data could trigger a revision of rate hike expectations, putting downward pressure on gold prices. (Spot gold daily chart, source: FX678) At 12:05 Beijing time on August 5, spot gold was trading at $4134.33 per ounce.