Oil slumps on U.S.-Iran pause, gold rebounds above $4,000 as Fed hike odds stay elevated

A sudden pause in U.S.-Iran military action rippled through global markets on Monday, sending crude sharply lower while lifting gold, as investors continued to weigh the Federal Reserve's rate path. International oil prices opened deeply in the red on July 27. U.S. crude fell more than 6% to about $83.10 a barrel, easing immediate concerns about inflation and supply disruptions tied to the Strait of Hormuz. Gold moved the other way: spot prices opened over $40 higher, climbed about 1% to an intraday peak of $4,096.63 an ounce, and were recently around $4,085 an ounce, up roughly 0.8%. U.S. equity index futures also advanced, with S&P 500 futures up 0.65% and Nasdaq futures up 1.2%. Diplomacy expectations rose after comments from U.S. Ambassador to the United Nations Mike Waltz on Sunday, July 26. He said that after two consecutive nights without airstrikes on Iran, President Trump opted to create room for diplomatic efforts. Iran's military also said it was pausing retaliatory strikes against U.S. allies in the Middle East, citing the halt in U.S. attacks over the same period. The pause followed 13 days of consecutive U.S. strikes that stopped late Friday night, after which Iran said Tehran had suspended its response. Markets have been sensitive to the Strait of Hormuz after hostilities reignited over control of the waterway. Reports said Iran had again closed the strait after fighting resumed and that six vessels attempting to transit were detained within the past 24 hours. Iranian military spokesperson Mohammad Akrami said Iran's actions were retaliatory and warned that continued U.S. airstrikes would intensify the situation. U.S. media offered differing context on Washington's decision-making. CNN, citing Pentagon sources, said military action had been "suspended." The New York Times reported that ammunition constraints and escalation risks contributed to the U.S. putting expansion plans on hold. Waltz rejected any suggestion of supply shortages, saying U.S. forces had all necessary resources and criticized the leaking of such information. An Iranian senior official said Tehran's position is straightforward: attacks will be met with attacks, and if the U.S. stops striking, Iran will stop as well, a message he said was conveyed to the United States. A senior Iranian source, though, described the pause as a tactical adjustment rather than a change in intent, pointing to Iran's history of being deceived by the U.S. Multiple reports said Trump decided to pause after last Friday's meeting, where Chairman of the Joint Chiefs of Staff General Cain and senior military and political advisers raised concerns about next steps. Vice President Vance reportedly had reservations about continuing the campaign, while U.S. Central Command Commander General Cooper recommended halting bombings as the operation's effectiveness was nearing its limit. The drop in oil helped cool inflation fears and, by extension, reduced pressure on the Fed to tighten policy. The U.S. Dollar Index opened and closed lower, falling as much as 0.23% to 101.22. Gold regained traction as oil retreated and geopolitical stress briefly eased, reclaiming the $4,050 area. Still, the metal's upside is being capped by expectations that the Fed could raise rates this year and by lingering doubts over the durability of the U.S.-Iran pause. $4,000 is emerging as a key level for traders. Last Friday, spot gold edged up 0.1% to close at $4,053.29 an ounce, ending the week up 0.9%. Independent metals trader Tai Wong said gold and silver appear to be finding support around $3,950 and $55, respectively. He added that a sharp escalation could still break those levels and trigger stop-loss selling, while a clear Fed signal next week to keep rates unchanged would be supportive. ING analysts attributed recent strength in part to bargain hunting and short covering after a sharp pullback from record highs earlier this year. They said high oil prices and rising yields could limit further gains, keeping $4,000 in focus in the near term. Kitco News' weekly gold survey showed Wall Street respondents leaning bearish or uncertain on the short-term outlook, while Main Street sentiment improved after gold once again held above $4,000. Adrian Day, president of Adrian Day Asset Management, said he remains cautiously optimistic but views the situation as unresolved given the risk of Fed hikes and slowing growth in an Asian economic powerhouse alongside stimulus measures. He argued that gold's ability to hold steady over the past week—after an initial dip and rebound—despite intensifying Iran tensions, higher oil, a stronger dollar and rising rate-hike expectations is constructive. When a market fails to fall on bad news, he said, it can be a bullish sign. Rich Checkan, president and COO of Asset Strategies International, cited two supports: oil above $100 a barrel and the technical floor near $4,000. After multiple tests, he believes $4,000 can hold, but said elevated Middle East tensions that keep oil and inflation worries high could still restrain a sustained gold rally. FXTM head of market analysis Lukman Otunuga noted Brent briefly surged above $100, pressuring gold through a familiar chain reaction: higher oil stokes inflation fears, lifts bets on Fed hikes, strengthens the dollar and pushes Treasury yields higher—all headwinds for non-yielding gold. He said technical factors may allow a modest bounce, but geopolitics could limit any durable recovery. Forex strategist James Stanley was more upbeat, arguing that demand has emerged on dips below $4,000 and that long-horizon buyers such as central banks, pension funds and hedge funds may view pullbacks as opportunities. With a Fed meeting next week and signs of strain in stock markets, he expects Chair Jerome Powell to sound less hawkish than many anticipate in order to support President Trump. Over the longer run, he said, the absence of meaningful fiscal tightening keeps the structural bull case for gold intact. SIA Wealth Management chief market strategist Colin Cieszynski held a neutral stance. He said much of the war premium has already been priced in after a major run-up, though the drop from $5,500 to $4,000 has not eliminated all conflict-related anxiety. He warned that if oil stays high, inflation could reaccelerate in one to two months, potentially strengthening the dollar and weighing on gold. He expects a three- to six-month consolidation period and sees limited scope for major volatility around the coming Fed decision. Over the next week, he said, gold is likely to trade between $3,960 and $4,170. The policy calendar now takes center stage. The Fed announces its rate decision on Wednesday, with markets broadly expecting the federal funds rate to remain unchanged at 3.50%–3.75%. With oil up about 27% this month, markets have priced in roughly 44 basis points of tightening by year-end. JPMorgan Chase Chief U.S. Economist Michael Feroli expects the Fed to stand pat at this week's meeting but said at least two committee members may dissent with a hawkish vote, reflecting impatience with inflation staying above target. CME FedWatch data show a 63.7% probability of no change in July and a 36.3% probability of a cumulative 25-basis-point hike. For September, the probabilities are 19.6% for no change, 55.2% for a cumulative 25-basis-point hike, and 25.2% for a cumulative 50-basis-point hike. By December, the probability of no change falls to 7.8%, with 30.9% for a cumulative 25-basis-point hike and 61.5% for at least a cumulative 50-basis-point hike. The implied probability of at least one rate hike this year stands at 92.2%, a backdrop that could limit gold's upside even if the Fed holds steady this week. U.S. data due include June durable goods orders, July consumer confidence, the first-quarter GDP estimate, June PCE inflation, personal income and spending, and the final July University of Michigan consumer sentiment reading. Overseas, the Bank of England is expected to hold rates at 3.75% on Thursday, the Bank of Japan is seen keeping its rate at 1% on Friday, and the eurozone will release a set of key indicators. Bottom line: gold is facing near-term resistance but retains its longer-term safe-haven and inflation-hedge appeal. The U.S.-Iran pause has offered a brief reprieve, pushing oil down and allowing gold to stabilize above $4,000, while equity futures strengthened. Still, skepticism in Tehran about the ceasefire's durability, ongoing Strait of Hormuz risks, and the high probability of additional Fed tightening this year remain key constraints. For now, $4,000 is the main level to watch, with prices likely to remain range-bound between $3,960 and $4,170 unless the balance between geopolitics, inflation and Fed expectations shifts decisively. As of 07:22 Beijing time, spot gold traded at $4,085.69 an ounce.