Key Points:
- Gold prices rose after a two-week US-Iran ceasefire.
- The agreement includes hopes for reopening the Strait of Hormuz.
- Oil prices fell, and stocks surged in response to the news.
- Analysts warn the ceasefire is fragile and gold remains sensitive to political shifts.
Gold prices climbed on Tuesday after U.S. President Donald Trump and Iran agreed to a two-week ceasefire. This truce aims to finalize talks on ending the war that has severely impacted global markets.
Bullion saw gains of as much as 3.1%, rising above $4,850 an ounce, adding to a 1.2% increase from the previous session. Trump announced on social media that he had agreed to stop bombing less than two hours before his self-imposed deadline to “wipe out Iran’s whole civilization.” He also stated that reopening the Strait of Hormuz was a crucial condition for this pause. Iran confirmed that safe passage through the strait was “possible” for two weeks.
In response to the ceasefire, oil prices fell below $100 a barrel, and the U.S. dollar also weakened. This weakened dollar helped support gold, which is priced in the U.S. currency. Equities, or stocks, surged by more than 2%. Since the war in the Middle East began, gold has mostly moved in sync with stocks. Its traditional role as a safe haven has been less prominent, as some investors needed to cover losses in other parts of their portfolios.
Ahmad Assiri, a strategist at Pepperstone Group Ltd., commented, “Gold’s push above $4,800 reflects a recalibration of risk, rather than a full regime shift.” He added that the price increase suggests markets now see a lower chance of long-term disruption, while still showing a significant discount compared to prices before the Iran conflict.
Now in its sixth week, the conflict has caused energy prices to spike and increased worries about inflation. This makes it more likely that central banks will delay cutting interest rates or even raise them. Bond traders expect the Federal Reserve to keep borrowing costs steady for the rest of the year, which would be a challenge for gold, as it does not offer interest.
Gold has dropped almost 10% since the war started at the end of February. A moderate recovery in recent days has come from hopes for a ceasefire, along with expectations that a slowdown in global economic growth will act against predictions of stable or higher borrowing costs.
On Tuesday, before the ceasefire was announced, three Fed officials voiced concerns about inflation and slower growth. Vice Chair Philip Jefferson said interest rates are generally in a range that neither boosts nor slows the economy. New York Fed Governor John Williams stated his view on underlying price pressures in the U.S. was largely unchanged.
Assiri concluded, “In the near term, gold remains highly sensitive to political developments. The current ceasefire provides a window of relief, but it is conditional and fragile. Any sign of breakdown, particularly around the Strait of Hormuz, would likely reintroduce volatility” and the risk of prices falling
