Gold and Silver Fall on Rate Hike Fears, US-Iran Peace Talks

 

Gold and Silver Fall on Rate Hike Fears, US-Iran Peace Talks

(Bullion News Network) – Gold and silver prices retreated on Monday to start the trading week. The spot price of gold moved largely flat, losing less than $15 per troy ounce to settle around the $4,200 level. Silver prices saw a bit more movement, shedding more than $0.50 per troy ounce. The price action favored gold, driving the gold-silver ratio higher. Like last week, both domestic rate hike speculation and uncertainty in the Middle East remained key market drivers throughout the day.

Iran-US peace talks led the news cycle on Monday. U.S. Vice President JD Vance participated in talks with Iranian leaders in Switzerland over the weekend. On Monday, Vance told reporters that the talks were “very, very good.” According to mediators, the U.S. and Iran are working toward a clearer line of communication, especially with regards to the Strait of Hormuz.

The status of the US-Iran peace agreement was a major question mark heading into Monday morning. After Israeli strikes in southern Lebanon over the weekend, Iran’s military claimed to have shut down the Strait of Hormuz just days after it was reopened. Maritime traffic monitors and the U.S. military refuted this claim.

U.S. President Donald Trump touted Iran’s reported agreement to resume nuclear inspections in a Truth Social post on Monday afternoon.

Everybody is fully aware that Iran will agree to have Major Weapons Inspections in order to ensure “Nuclear Honesty” long into the future.

Crude oil futures have dropped considerably over the past month as traders anticipated the reopening of the Strait of Hormuz, through which approximately 20-25% of the world’s maritime oil trade flows annually. Futures prices had fallen by more than 23% on the month by market close on Monday, with a five-day drop of 6.24%.

Domestically, rate hike jitters continued to put an anchor on safe haven asset prices. The Federal Reserve is widely expected to raise interest rates at least one time in 2026. As of Monday CME FedWatch projects a 36.3% probability that the central bank will vote for a rate hike at its July meeting. According to the same model, the probability of at least one rate hike jumps to 88.1% by the end of the year.

Much of the speculation stems from the June Federal Reserve meeting. At the post-meeting press conference, Chair Kevin Warsh justified the FOMC’s decision to remove “forward guidance” language from the official statement.

You might have already noticed something: a difference in today’s policy statement. It’s a bit shorter, a bit simpler – and it dispenses with some older language. The statement just gives you the facts, as best we can judge it. Absent, also, is so-called “forward guidance,” which we agreed was not well-suited to the current policy conjuncture.

But rumors that the FOMC may be forced to raise rates in 2026 predate this latest meeting. Consumer price reports in April and May showed that inflation continued to climb, while employment data has remained relatively strong. Given upward pressure on consumer prices and a solid jobs market, the FOMC seems poised to raise rates in order to curb inflation.

That being said, the next two weeks will feature a couple of reports that could alter the trajectory of the central bank’s next moves.

First is the May Personal Consumption Expenditures (PCE) index, which is due for release this Thursday. This report is one of the FOMC’s preferred measures of inflation. Forecasters expect another uptick compared to the April report, but cooling inflation could reduce the Fed’s urgency and stave off a rate hike.

Next Thursday, traders will be able to review the June U.S. employment report. A strong pullback in jobs created could suggest a cooling economy, which would similarly cause the Fed to hesitate before hiking rates. As it stands, strength in the labor market could function as a buffer, with risks to employment minimal enough in a hot economy to justify a bit of downward risk in exchange for lowering consumer prices. But if the labor market were to begin cooling, the FOMC would find itself in a spot where it needs to choose between its two core mandates, maximizing employment and keeping consumer prices under control.

In other words, Thursday should be a big day where rate hike speculation is concerned.

This week is slated to play out similar to the past couple of trading weeks. Domestically, rate hike speculation will dominate economic headlines. In the Middle East, traders will likely focus on the ongoing peace talks between the U.S. and Iran, with a particular focus on both the Strait of Hormuz and Israel’s relations with Lebanon.