Trump's Iran Pause Sends Gold Soaring, Oil Plummeting by $5/Barrel

US President Donald Trump's decision to pause any fresh strike on Iran sent shockwaves through global markets, causing gold prices to rise and oil prices to plummet. On Monday, Trump announced that he would give diplomacy a chance, including talks that could reopen the Strait of Hormuz.

The move was unexpected, as conflict typically boosts both oil and gold prices. However, traders marked down the risk of a supply shock through Hormuz, causing the 'conflict premium' built into crude to unwind. This led to a $5-a-barrel drop in oil prices, which can lower near-term inflation expectations by filtering into gasoline, shipping, and airline fares.

The cooler oil prices also reduced the pressure investors think the Federal Reserve will feel to keep rates higher. Gold, which doesn't pay interest, tends to look better when inflation fears ease and interest-rate expectations soften. However, the rates debate is still live, with three Fed officials who dissented at the last meeting arguing that without an immediate hike, inflation could stay above the central bank's 2% target.

The $5 drop in oil prices may matter more for rate bets than for geopolitics, as it can ripple into markets sensitive to the Fed's expected path for short-term rates. It can also support assets that usually benefit when real yields fall, like gold. However, these signals can reverse quickly if headlines reprice the risk of supply being cut off.