Key Points:
- Gold prices rose on hopes for a diplomatic resolution to the Iran war.
- US and Iran consider extending ceasefire despite ongoing Strait of Hormuz blockade.
- Softer crude prices eased inflation concerns, influencing central bank rate decisions.
- Gold is transitioning from moving in-step with risk assets, sensitive to real yields.
Gold prices advanced after a two-day decline, as renewed optimism for a diplomatic end to the Iran war eased inflation concerns. This happened despite continued tensions around the Strait of Hormuz.
Bullion rose as much as 1% to nearly $4,838 an ounce, recovering most of the loss from the previous session. The U.S. and Iran are considering extending their two-week ceasefire to allow more time to negotiate an end to the conflict that has disrupted global markets, according to a person familiar with the matter. However, vessel movement through Hormuz remains restricted, with the U.S. blockading Iranian ships and Tehran keeping the critical waterway closed to most other traffic.
The Associated Press reported that the two sides have an “in principle agreement” to pursue further diplomacy after initial talks in Pakistan over the weekend were inconclusive. U.S. President Donald Trump downplayed the prospect of renewed fighting on Tuesday, telling Fox Business that the nearly seven-week war is “close to over.”
Oil prices remained steady on Thursday, while U.S. stocks closed the previous day at record highs, and the dollar slightly weakened. Softer crude prices in recent days have reduced worries about inflation. These concerns had previously made central banks more likely to keep interest rates steady for longer or even raise them.
The swap market still predicts that the U.S. Federal Reserve will keep rates steady this year. This view is supported by comments from Fed Bank of St. Louis President Alberto Musalem and Fed Bank of Cleveland President Beth Hammack, who said she expects rates to be “on hold for a good while.” Higher borrowing costs are a challenge for non-yielding gold.
Suki Cooper, global head of commodities research at Standard Chartered Plc, wrote in a note, “Given the fragile ceasefire and switch to focus on real yields, gold is not yet out of the woods, and liquidity needs could continue to pressure prices further.” She added that with the competing risks of inflation and slower growth, “the policy response will be key,” as gold “transitions away from moving in-step with risk assets.”
Gold has fallen about 8% since the start of the war. A liquidity squeeze in the early weeks of fighting led investors to sell off their gold holdings to cover losses elsewhere. In a sign that buyers are returning to the market, bullion-backed exchange-traded funds have added around 25 tons so far this month, after cutting about 94 tons in March, according to a Bloomberg calculation.
Spot gold rose 0.8% to $4,830.20 an ounce as of 9:11 a.m. in Singapore. Silver climbed 1.7% to $80.31. Platinum and palladium also advanced, while the Bloomberg Dollar Spot Index slipped 0.1%.
