Gold's Rise Stymied by Inflation Despite Ceasefire

Spot gold rebounded as much as 1.5% to $4,556.84 an ounce on Friday after reports emerged that the U.S. and Iran had agreed to extend their ceasefire by 60 days, offering traders a short-term catalyst even as persistent inflation kept the metal on track for a third consecutive monthly decline.¹

For deal-focused investors, the key tension is structural: the same geopolitical shock that briefly drives safe-haven buying is simultaneously stoking energy-driven inflation, cementing a Federal Reserve “higher-for-longer” stance that raises the opportunity cost of holding non-yielding bullion.

Key Takeaways

Spot gold bounced 1.5% but remains down over 1% for May.
Proposed ceasefire would reopen the Strait of Hormuz to shipping.
Fed rate-hold expectations weigh against sustained gold gains.

Market Reaction & Context

Gold’s intraday surge to $4,556.84 came after prices touched a two-month trough of $4,365.76 on Thursday, a drop of roughly 4% from recent highs that underscored how quickly risk appetite can shift.² U.S. August gold futures settled 1.3% higher at $4,593, outpacing silver, which was broadly flat at $75.62, and platinum, which slipped 0.3% to $1,917.65.¹

Palladium was the session’s standout laggard, falling 1.1% to $1,352.24 and extending its May loss to more than 11%, a move that highlights how precious metals beyond gold are facing their own demand-side pressures independent of geopolitics.¹

Ceasefire Deal: What Markets Are Pricing In

Four sources familiar with the matter told Reuters that the proposed agreement would extend the U.S.-Iran truce by 60 days and lift restrictions on shipping through the Strait of Hormuz, a critical chokepoint for global energy flows.² President Donald Trump said he would decide “imminently” on the deal, which he conditioned on Iran dismantling its capacity to produce a nuclear weapon.¹

Ceasefire optimism pushed crude prices and the U.S. dollar lower during the session – a dual tailwind for bullion, since a weaker greenback makes dollar-denominated metals cheaper for overseas buyers. The broader risk-on dynamic also echoed across equity markets, with the Dow Jones Industrial Average climbing more than 450 points to a record close on related Iran-deal headlines.²

“Gold bounced from a key technical support level, while optimism over the ceasefire extension pushed oil prices and the dollar lower – both supportive for bullion,” said Phillip Streible, chief market strategist at Blue Line Futures.²

The Inflation Counterweight

Despite Friday’s bounce, spot gold remained down more than 1% for May, putting it on course for a third straight monthly decline.¹ The drag traces directly to U.S. inflation data released Thursday showing the Personal Consumption Expenditures price index rose at its fastest pace in three years in April, driven by energy costs linked to the Iran conflict.³

Federal Reserve Bank of New York President John Williams said monetary policy is “in the right place,” signalling the central bank is not inclined to cut rates even if near-term inflation pressures ease later in the year.³ Higher rates increase the opportunity cost of holding non-yielding gold, creating a structural ceiling on prices even when geopolitical risk flares. Investors tracking broader risk-asset rotation may find additional context in how the Iran peace narrative has already catalysed sharp moves in other asset classes.

Physical Demand Picture

Granular demand data adds further nuance for valuation-focused readers. Gold consumption in India – the world’s second-largest consumer – remained subdued due to elevated prices and import duties, while premiums in top consumer China narrowed amid cautious sentiment.¹

GoldSilver Central managing director Brian Lan said markets have stabilised around Thursday’s ceasefire announcement.

“Yesterday, we saw gold went down to $4,360 and was likely to go down further until the (ceasefire) announcement came, due to which we suddenly saw the reversal of prices. Markets are now waiting for the deal to be signed even if it’s only just pending Trump’s signature,”

Lan said.³

Outlook

The near-term price action hinges on two binary outcomes: whether Trump formally endorses the ceasefire extension, and whether subsequent inflation readings show energy-price relief feeding through to headline CPI. A signed deal that reopens Hormuz could push oil meaningfully lower, easing inflation and softening the Fed’s resolve – a scenario that would remove one of gold’s key suppressors.

Until that clarity emerges, Streible cautioned that the “higher-for-longer” interest-rate theme remains intact, as residual disruptions to shipping and energy infrastructure could keep the Fed on hold well into next year.² Retail investors holding gold ETFs or futures should monitor both the diplomatic calendar and the June Fed meeting minutes for any shift in the rate trajectory.

Not investment advice. For informational purposes only.