A fractured Fed decision fuels short-term optimism
At its most recent meeting, the US Federal Reserve opted to keep interest rates steady, but a 9-3 split among members highlighted a lack of unified consensus. The decision underscored a divide among officials, with some hinting at a potential need for tighter monetary policy in the future to address ongoing inflation concerns.
Gold prices climbed to a high of $4,100 per ounce on Thursday morning in Singapore, adding to a 0.9% gain recorded the day before. This upward movement was driven by investors looking for safe-haven assets as global geopolitical tensions rise and worries about prolonged high interest rates persist.
War in the Middle East weighs on inflation and gold’s recovery
Since the US-Iran conflict began in October, gold prices have dropped more than 20%. Rising energy prices have fed inflation fears, and expectations for interest rate cuts remain low. Despite this, the price of gold has remained close to the $4,000 support level since late June, attracting buyers who believe the metal may be undervalued.
Nicky Shiels, who leads research and metals strategy at MKS PAMP SA, suggested that underperforming assets such as gold and bonds might experience a rebound following the Fed's decision. She highlighted that $4,200 represents a pivotal moment in the market for the precious metal, possibly sparking renewed interest.
Escalation in the Middle East adds to uncertainty
Tensions intensified in the Middle East after US President Donald Trump declared his intention to retaliate against an Iranian assault on an American military base in Jordan. In response, the US and Saudi Arabia also targeted Iranian-backed groups in Iraq, following reports that these groups had launched drone attacks on Saudi oil facilities.
Oil prices surged by the largest margin in over two weeks, reflecting the region's instability. Meanwhile, the Bloomberg Dollar Spot Index dropped further, continuing a decline seen the previous session. Silver climbed 1.1% to $58.37 an ounce, and other precious metals like platinum and palladium also experienced gains.
Gold remained supported but range-bound, rallying above $4,100/oz before retreating toward $4,050/oz on Friday. Even with the late-week pullback, the metal appeared headed for its first monthly gain since February. The Federal Reserve held interest rates unchanged on Wednesday, sparking a relief rally, but three dissents in favor of a 0.25% hike reinforced the risk that tighter policy could still arrive later in 2026.
Renewed instability surrounding the US-Iran war and Middle East shipping routes supported gold's safe-haven appeal, even as the conflict's inflationary implications created a longer-term headwind. Next week's focus will remain on developments in the Middle East before the July Jobs Report is released on Friday.
The week's primary scheduled event was Wednesday's FOMC decision and the post-meeting press conference led by Chair Kevin Warsh. The central bank again held policy interest rates unchanged, in line with the market's consensus base case, but a relief rally of more than $40/oz—taking gold to $4,085 during the US session and briefly above $4,100/oz during Asian trading—suggested that at least some risk premium had been attributed to a possible hike. Of course, the possibility that the Fed's next move will be a hike now looms larger, with three officials dissenting in favor of a 0.25% increase.
Beyond the immediate reprieve, Warsh's decision to withhold forward guidance leaves markets and economists with little visibility even four to eight weeks out. With inflation neither surging nor cooling in a meaningful way, the clearest anchor available to analysts is Warsh's consistent rhetoric that high inflation is "unacceptable," which implies a greater likelihood that the Fed raises rates in 2026 before it cuts them. Looking at gold's chart for the week, we can see where the market began to digest that possibility: Thursday's spike to the weekly high was followed by a steep drop into Friday morning, with prices returning to roughly $4,050/oz.