Spot gold climbed to $4,559.07 per ounce early Monday, according to Reuters. U.S. gold futures for June delivery rose 0.8% to $4,559.80. However, the rally sits on fragile ground, and investors should understand exactly why.

The Strait of Hormuz Is Doing All the Work

The market is not reacting to gold fundamentals. Instead, it is reacting to oil. President Donald Trump said over the weekend that Washington and Tehran had “largely negotiated” a memorandum of understanding. That statement softened oil prices immediately. Brent crude slipped below $100 per barrel, according to Investing.com. Because lower oil reduces inflation expectations, gold caught a bid. As Tim Waterer, chief market analyst at KCM Trade, told CNBC, Trump's statements have raised market hopes for a Strait of Hormuz reopening, which has “weighed on oil prices and, by extension, given gold a welcome lift from an inflation perspective.”

Therefore, gold is not rallying on safe-haven demand. It is rallying on the prospect of cheaper energy. That distinction matters for traders.

The Deal Is Far From Done

Crucially, Trump himself walked back optimism on Sunday. He said there was no rush to finalize anything. Meanwhile, Iran's foreign ministry confirmed that the memorandum does not yet include specifics about Hormuz management, according to Reuters. Secretary of State Marco Rubio added that the U.S. will either reach a good agreement or handle things “another way.” That language is deliberately ambiguous.

Furthermore, the Strait remains closed. Two LNG tankers exited on Saturday, according to InvestingLive, but that is not a reopening. It is a signal. Until the waterway fully reopens, oil supply disruptions persist. Persistent disruption means persistent inflation pressure.

Why That Matters for the Fed

Here is where the story gets complicated for gold bulls. The Federal Reserve currently holds its benchmark rate at 3.5% to 3.75%, according to the Fed's own minutes from the April 29 meeting. Notably, four Fed officials voted against that hold, the most dissenting votes since 1992, per CNBC. A majority of officials now anticipate rate hikes will be necessary if the Iran conflict continues to drive inflation higher.

Markets are already pricing approximately a 30% probability of a rate hike by the first quarter of 2027, according to the April FOMC minutes. J.P. Morgan also lowered its 2026 average gold price forecast to $5,243 per ounce from $5,708. The bank cited weaker near-term investor demand. Rising rates raise the opportunity cost of holding non-yielding gold. So, a deal that reduces oil prices could paradoxically delay rate cuts without fully eliminating hike risk.

Rising Rates Could Cancel the Gold Rally

The gold price-Iran deal dynamic is ultimately a pivot story. Gold moves on whichever signal arrives first: a confirmed Hormuz reopening or a breakdown in talks. If the deal collapses, oil spikes again. Inflation returns. The Fed moves toward tightening. Gold falls. If the deal closes, oil softens durably. Inflation eases. Rate cut bets revive. Gold likely consolidates near current levels rather than surging.

Moreover, gold is currently trading below its 21-day, 50-day, and 100-day simple moving averages, according to ForeignPolicyJournal's analysis of May 25 trading. That technical picture signals caution. The recent bounce from the $4,520 area looks corrective, not the beginning of a new trend.

The Bigger Picture

Gold has lost more than 11% since the US-Iran conflict began in late February. That decline reflects a market caught between competing forces: geopolitical risk that normally lifts gold, and energy-driven inflation that pushes central banks toward tightening, which pressures gold. A peace deal resolves that tension only partially. Central bank hawkishness does not disappear overnight.

Retail traders should treat Monday's move as a geopolitical relief trade, not a trend reversal. Watch Hormuz shipping data, Fed communications from new Chair Kevin Warsh, and Iran's foreign ministry statements. Those three signals will determine whether the gold price Iran deal trade has legs.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.