Gold Prices Stabilize as Iran Tensions Ease, Rate Hike Expectations Wane
Gold prices have been fluctuating near recent lows due to heightened geopolitical tensions and energy crises. The Strait of Hormuz, through which roughly 30% of global oil supply passes, has been disrupted by U.S.-Iran tensions, pushing up oil prices and reigniting inflation concerns.
The resulting market expectations for Federal Reserve rate hikes have put downward pressure on gold prices. Jefferies analysts note that real yields continue to rise, keeping gold firmly capped below $4,200 per ounce. Despite numerous near-term headwinds, gold and mining equities still present valuation recovery opportunities supported by geopolitical risks, central bank gold purchases, and other factors.
Rising rate hike expectations have weighed on gold prices, with the real yield on 10-year Treasury Inflation-Protected Securities (TIPS) rising significantly. Jefferies analysts note that sharp adjustments in rate expectations can trigger substantial gold price corrections. Institutional reviews of multiple historical tightening cycles show that gold and mining stocks experienced significant short-term drawdowns but diverged markedly in the year following each pullback.
Jefferies maintains a cautiously optimistic outlook on gold for the latter part of the year, emphasizing that the direction of future real-rate expectations matters more than the absolute level of real rates. Central bank gold buying, geopolitical uncertainty, U.S. fiscal vulnerabilities, de-dollarization trends, and global institutional demand for hard assets collectively form a strong underlying support for gold.
Should real-rate pressures ease, gold prices could stage a rebound. Christopher Wood, Global Head of Equity Strategy at Jefferies, stated that if the current AI-driven capital spending boom collapses, the Federal Reserve would lose its practical justification for further rate hikes. He added, 'For all these reasons, after a prolonged period of waiting and consolidation, investors should now gradually reposition into gold and gold mining stocks.'