Oil Plunge Sends Gold Soaring on Waning Inflation Fears

Gold prices rose on Monday as US-Iran tensions eased and oil dropped to a one-week low, sparking concerns that inflation pressures may be waning.

The sharp decline in crude oil prices from over $100 last week to $90 sent shockwaves through markets, with strategists pointing out that this was not just an energy story but also a rates story. As Bart Melek at TD Securities noted, the drop in oil prices could ease near-term inflation pressure, making investors less convinced that the Federal Reserve needs to keep interest rates 'higher for longer'. This matters for gold because it doesn't pay interest, and when expected rates fall, the opportunity cost of holding bullion usually looks smaller.

The next test will be whether data back up the calmer inflation narrative. Traders are closely watching Thursday's June personal consumption expenditures (PCE) inflation report, which is the gauge the Fed leans on most. This report has the potential to shift expectations and impact gold prices.