Key Points:
- Gold prices rose on hopes for US-Iran peace talks.
- Trump confirmed Iran’s desire for a deal despite a naval blockade.
- Oil prices fell, and stocks rallied; the dollar weakened.
- Inflation concerns eased, but supply shock worries linger.
Gold prices climbed after a two-day drop, as renewed optimism for a negotiated end to the U.S.-Iran conflict eased worries about inflation. Bullion rose as much as 1.2% to $4,796 an ounce, recovering losses from the previous two sessions.
Even with the U.S. starting a naval blockade of the Strait of Hormuz, President Donald Trump stated that Iranian officials had approached his administration, expressing a desire “to work a deal.” Separately, Iranian President Masoud Pezeshkian said Tehran was ready to continue peace talks within international law.
Oil prices dropped below $100 a barrel, while stock markets rallied. The dollar weakened for the seventh straight session, its longest losing streak in two years. This weaker dollar supported gold, which is priced in the U.S. currency.
The fall in energy prices relieved some of the inflationary pressure that has been affecting gold since the war began over six weeks ago. This pressure led traders to expect central banks to keep interest rates steady for longer, or even raise them – a challenge for non-yielding commodities like gold.
Still, concerns about further energy-supply shocks and economic problems remain. This is especially true as the U.S. blockade of vessels going to or from Iran’s Persian Gulf ports or coastal areas increases pressure on Tehran. With tensions high, U.S. money markets still show less than a one-fifth chance that the Federal Reserve will cut interest rates by December.
Justin Lin, an investment strategist at Global X ETFs Australia, noted, “Gold is still trading as a function of interest-rate expectations, rather than a geopolitical hedge, so it is benefiting alongside equities on hopes of de-escalation overnight.” He added that while inflation worries affect gold in the short term, higher-for-longer oil prices might eventually lead to slower economic growth, which has “historically been positive” for gold.
Despite a moderate recovery in recent weeks, bullion has still fallen around 10% since the conflict began in late February. An early liquidity crunch in the fighting saw investors selling their gold holdings to cover losses elsewhere.
Spot gold was 0.7% higher at $4,773.26 an ounce as of 3:27 p.m. Singapore time. Silver rose 2.5% to $77.51 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, which measures the dollar’s value, fell 0.2%.
