Gold Hits Two-Week High as Fed Outlook, Middle East Conflict Stay in Focus

Gold prices climbed to a two-week high on Wednesday, buoyed by technical buying as investors closely monitor the escalating Middle East conflict and anticipate the US Federal Reserve's upcoming meeting for insights into the interest rate outlook. Spot gold saw a significant increase of 1.3%, reaching $4,129.43 per ounce, its highest level since July 7. US gold futures for August delivery also experienced a notable jump of 1.4%, settling at $4,134.50.

The heightened tensions in the Middle East have contributed to a rise in oil prices and amplified inflation concerns. This environment has strengthened expectations of further interest rate hikes by the Federal Reserve, a factor that led to gold's steepest weekly drop since early June last week. "Buyers have been stepping in seeking a value play after the recent pullback, while hopes for diplomatic progress between the US and Iran are also assisting price moves," noted Tim Waterer, chief market analyst at KCM Trade.

Despite the ongoing crisis, US Secretary of State Marco Rubio indicated on Wednesday that Washington remains open to negotiating an end to the Iran crisis, though he expressed skepticism about Tehran's seriousness in pursuing talks. Meanwhile, a Reuters poll suggests that the Federal Reserve will maintain its key interest rate steady for the remainder of 2026. However, a shift in sentiment is evident, with a majority of respondents now viewing the likelihood of a rate hike this year as "high," a reversal from the previous month when it was considered "low."

These higher-for-longer interest rate expectations increase the opportunity cost for holding non-yielding assets like bullion. In other precious metals markets, spot silver rose 1.6% to $59.71 per ounce, reaching its highest point since July 10. Platinum climbed 1.9% to $1,659.97, and palladium saw a 2.2% increase to $1,310.50.

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Buyers have been stepping in seeking a value play after the recent pullback, while hopes for diplomatic progress between the US and Iran are also assisting price moves.