By Kaynat Chainwala, AVP – Commodity Research, Kotak Securities
Gold and silver witnessed sharp volatility on Wednesday as investors balanced rising expectations of US Federal Reserve rate hikes against easing geopolitical tensions in West Asia. After an initial sell-off, both precious metals recovered during the session, although concerns over tighter monetary policy continue to weigh on sentiment.
Spot gold slipped below $3,950 per ounce earlier in the day, while silver fell to $57 per ounce before rebounding to trade above $4,030 and $58.5 respectively. The recovery followed Monday’s steep decline, when both metals lost more than 1.5% and settled below $4,020 and $58.50. The sell-off was driven by renewed hostilities between the United States and Iran around the Strait of Hormuz, which reignited inflation concerns and strengthened expectations of further monetary tightening by the Federal Reserve.
Markets are currently pricing in three potential Fed rate hikes this year. According to the CME FedWatch Tool, the probability of a rate increase stands at approximately 64% for September, 70% for October and 80% for December. Federal Reserve officials have maintained a cautious stance, with Richmond Fed President Tom Barkin warning that inflation remains elevated despite some signs of moderation. Minneapolis Fed President Neel Kashkari also pointed to broadening inflationary pressures and indicated support for another rate hike this year.
Focus Shifts to US Jobs Data and Central Bank Signals
This week is expected to be crucial for precious metals markets. Investors are closely watching the upcoming US non-farm payrolls report, which is widely regarded as one of the most influential indicators of economic strength.
A stronger-than-expected jobs report could reinforce expectations of further interest-rate hikes, putting additional pressure on gold and silver prices. Market participants are also awaiting comments from Fed Chair Kevin Warsh at the ECB Forum in Sintra, where discussions alongside other central bank leaders could provide fresh insights into the future path of monetary policy.
Analysts believe traders will continue to weigh hawkish Fed expectations against any signs of de-escalation in West Asia, which could provide temporary support to bullion prices. Despite the latest rebound, gold remains on track to post a decline of more than 10% for the June quarter, while silver is heading for losses exceeding 20%.
Oil Holds Steady as Markets Await US-Iran Negotiations
Crude oil prices remained largely stable ahead of fresh peace talks between the United States and Iran in Doha. The discussions are expected to focus on technical aspects of a broader memorandum of understanding aimed at reducing tensions in the region.
Despite relative calm in the market, oil is on track for its steepest quarterly decline since the pandemic. The geopolitical risk premium that had supported prices in recent weeks continues to fade as concerns over major supply disruptions ease.
Shipping activity through the Strait of Hormuz has gradually normalized after disruptions caused by a recent attack on a container vessel. However, uncertainty persists after Iran reiterated its intention to maintain oversight of maritime traffic through the strategic waterway. Iranian Deputy Foreign Minister Kazem Gharibabadi said Tehran is seeking an arrangement with Oman regarding vessel passage through the strait, while indicating that Iran may act independently if an agreement is not reached.
Ceasefire Eases Market Concerns
Oil prices had moved higher earlier this week after renewed tensions in the region. A Panamanian-flagged tanker was struck near the Strait of Hormuz, prompting the US Central Command to launch strikes on ten Iranian military targets, including radar installations and missile and drone storage facilities.
US President Donald Trump warned of severe consequences if further incidents occurred. However, market sentiment improved after Washington and Tehran agreed to step back from further escalation. A US official confirmed that commercial vessels could once again transit the Strait of Hormuz freely.
The easing of tensions reassured markets, with benchmark crude contracts posting gains. West Texas Intermediate (WTI) crude settled at $70.8 per barrel, while Brent crude closed at $73.2 per barrel, both ending the session nearly 2% higher.
With diplomatic efforts in Qatar now taking center stage, traders will closely monitor whether the de-escalation holds. While geopolitical risks remain, analysts believe the fading supply-disruption premium could continue to limit upside in oil prices in the near term.
