December Fed Hike Odds to 51%, Supporting Gold at $4,316 Ahead of Warsh's First Rate Decision

• Spot gold rose 2.3% to $4,316.03/oz after the US-Iran peace framework cut December Fed rate-hike odds from 69% to 51% in a single session.
• Oil prices fell more than 4% and the US dollar hit a 10-day low after plans to reopen the Strait of Hormuz reduced inflation expectations.
• Gold remains about 20% below its January $5,600/oz peak, with Wednesday's Fed decision now the key catalyst for the next move.
• A CME FedWatch reading below 45% after Chair Kevin Warsh's statement would support a move toward $4,500/oz, while a reading above 55% would strengthen the bearish case.
• Q1 gold recycling rose 5% to 366 tonnes, while US-led critical minerals negotiations with Japan and the EU highlight ongoing supply-chain competition beyond the gold market.

Strait of Hormuz Reopening Cuts Fed Hike Odds & Lifts Gold

The US and Iran announced a framework agreement to end their conflict and reopen the Strait of Hormuz, with a formal signing planned in Switzerland. Spot gold rose 2.3% to $4,316.03/oz, its highest level since June 9, while August gold futures gained 2.3% to $4,337.20, marking a third straight session of gains.

The deal triggered a sharp shift in interest-rate expectations. Markets cut the implied probability of a December Fed rate hike from 69% to 51% after the deal, as oil prices fell more than 4% and the US dollar weakened to a 10-day low. KCM Trade's Tim Waterer said lower oil prices and a weaker US dollar reduced inflation expectations after the Strait of Hormuz reopening, helping drive the 18-percentage-point decline in December rate-hike odds.

Iran Peace Deal Eases Inflation Pressure but Gold Demand Remains Uncertain

Gold has fallen about 20% from its January record of $5,600/oz since disruptions in the Strait of Hormuz pushed energy markets higher following the US-Israeli conflict with Iran. Higher oil prices increased inflation concerns and strengthened expectations that the Fed would keep rates elevated. That reduced the appeal of non-yielding gold relative to interest-bearing assets.

OCBC said concerns over currency debasement, fiscal risk, and geopolitical fragmentation continue to support long-term gold demand, while lower energy-driven inflation could strengthen those themes. The peace deal removes a key pressure on gold prices, but it does not create a new source of demand, leaving the sustainability of the move to $4,316/oz uncertain.

Fed Rate Guidance Sets Gold's Next Move

The Fed's upcoming policy decision, the first under Chair Kevin Warsh, is the next key catalyst, with markets widely expecting rates to remain unchanged. Warsh's assessment of inflation and lower energy prices will help determine whether the implied probability of a December rate hike falls below 51% or returns toward the previous 69% level.

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Wednesday's statement could set two paths for gold prices. Bull case: If Warsh signals lower energy prices are reducing inflation pressures and December rate-hike odds fall to 40% or lower, gold could advance toward $4,500 and support analyst targets of $5,400-6,300/oz. Bear case: If Warsh signals inflation risks remain elevated and December rate-hike odds hold near 51% or rise, gold could struggle to break above $4,400 as higher rate expectations reduce demand for non-yielding assets. The key indicator is the CME FedWatch probability of a December rate hike after Wednesday's statement. A reading of 45% or lower supports the bull case, while 55% or higher supports the bear case.

Higher Gold Prices Boost Recycling as Critical Minerals Pricing Stays Unresolved

Q1 gold recycling rose 5% to 366 tonnes as gold prices near $4,200/oz increased the value of scrap recovery. Gold Traders dealer Jon White said the gold content of an Omega Constellation was worth £5,750 ($7,749), about 35% above its estimated £4,000-4,500 auction value, highlighting the incentive to recycle gold-bearing items. Industry analysts have targets of $5,400-6,300/oz for gold. Prices above $4,500/oz could increase recycled supply, limiting further gains and affecting producer price assumptions.

For critical minerals miners, the key question is whether projects remain economic at current Chinese benchmark prices while G7 pricing negotiations remain unresolved. The Trump administration is targeting agreements with Japan and the EU covering heavy rare earths, antimony, graphite, and tungsten, all of which face Chinese export restrictions. National Mining Association CEO Rich Nolan urged USTR Greer to focus on tax credits and other incentives rather than coordinated pricing mechanisms. EY's Blake Harden said uncertainty over policy design is increasing concern across the critical minerals supply chain.

Fed Decision & Iran Peace Deal Set Gold's Near-Term Direction

Gold at $4,316/oz reflects a balance between a 51% implied probability of a December Fed rate hike and continued demand driven by currency debasement and fiscal risk concerns, according to OCBC. Any shift in rate expectations after Wednesday's Fed statement could move gold prices. The key indicator is the CME FedWatch implied probability of a December 2026 rate hike.

The main risk to gold is Fed guidance indicating that lower energy prices are not enough to change the interest-rate outlook. That could push December rate-hike odds back toward 69% and recreate the pressure that contributed to gold's 20% decline from its January peak. A CME FedWatch reading of 60% or higher would weaken the case for higher gold prices, while a reading of 40% or lower would support a move toward $5,400/oz. The Fed decision, Iran's formal peace signing, and G7 discussions on critical minerals agreements will occur within the same week, concentrating several market-moving events into a five-day period.