Gold Holds Steady as Hormuz Strait Deal Hopes Trim Rate-Hike Bets

Progress in diplomatic efforts to reopen the Strait of Hormuz in the Middle East has calmed global markets, creating a balancing effect on gold prices. The possibility of an interim agreement has notably led to significant drops in oil prices, reinforcing expectations that energy-driven inflationary pressures will subside. Consequently, the likelihood of the US Federal Reserve (Fed) raising interest rates has decreased, creating a supportive environment for non-yielding gold.

Negotiations for the reopening of the Strait gained momentum following statements from US Treasury Secretary Scott Bessent. Bessent told CNBC that talks with Iranian officials were ongoing and that a deal to reopen the Strait could materialize "today or tomorrow." Qatar also announced that a draft agreement had been prepared, while Iran, despite denying direct talks with the US, confirmed ongoing discussions with Oman. These diplomatic steps boosted market optimism, further supported by US President Donald Trump's decision to halt planned military actions and prioritize diplomacy.

One of the most significant reflections of these diplomatic developments was observed in the oil markets. West Texas Intermediate (WTI) crude fell to around $75.50 per barrel, while Brent crude prices also dropped below $80. This decline in oil prices alleviated global energy supply concerns, pushing down inflation expectations. With diminishing inflation risks, the pressure on the Fed to raise interest rates also eased. According to CME FedWatch Tool data, the probability of a September rate hike fell from 67.2% to 57.1%. Additionally, US Treasury yields declined, increasing the attractiveness of non-yielding gold.

The impact of these developments on markets manifested as a limited rise or sideways movement in gold's spot price, which traded in the range of $4,050 to $4,087 per ounce. Gold had closed July with its first monthly gain since the Iran war began. The US Dollar Index (DXY) also weakened, providing further support to gold's value. Market participants are closely monitoring the upcoming ADP and nonfarm payrolls data this week, as weaker-than-expected JOLTS job openings data for June also contributed to reduced rate hike expectations.

The Strait of Hormuz is a critical energy chokepoint, through which one-fifth of the world's oil and natural gas trade passes, making it vital for the global economy. The US-Iran conflict, which began on February 28, 2026, severely restricted maritime traffic in the Strait, and previous ceasefire attempts had failed. These new diplomatic efforts are crucial not only for energy supply security but also for de-escalating regional tensions and achieving broader stability. However, Iran's demands regarding transit fees and control mechanisms in the Strait remain an obstacle to a comprehensive agreement.

Analysts suggest that these developments in the Strait of Hormuz could reduce market volatility in the short term. UBS analysts indicate that falling oil prices, by easing pressure on the Fed to raise rates, are supportive of gold. Citi Research analysts, however, predict that gold prices might stagnate or even decline over the next month before rallying to $4,500 per ounce in the fourth quarter. The general expectation is that if diplomatic channels remain open and normalization in the Strait continues, uncertainties surrounding the global economic outlook will somewhat diminish.