Gold surged more than 2% on Monday after officials from the United States and Iran announced an initial agreement to end their prolonged conflict, triggering a sharp decline in oil prices and easing concerns over inflation and aggressive interest rate hikes, Reuters reported.
By 0312 GMT, spot gold had climbed 2.5% to $4,322.87 per ounce, reaching its highest level since June 9 and marking a third consecutive session of gains. U.S. gold futures for August delivery rose a comparable 2.5% to $4,344.80.
Peace deal framework announced
U.S. and Iranian officials said on Sunday they had agreed on a framework to end their war, halt the U.S. blockade of Iran, and fully reopen the Strait of Hormuz a vital chokepoint through which about 20% of the world’s oil passes. Pakistani Prime Minister Shehbaz Sharif said on X that the pact will be officially signed on Friday in Switzerland, with Swiss diplomats facilitating the final negotiations.
Dollar and oil both drop
In response to the detente, the U.S. dollar fell to a 10-day low, making greenback-priced bullion cheaper for holders of other currencies. Meanwhile, oil prices slipped more than 4%, easing one of the key drivers of recent global inflationary pressure.
“Lower oil prices and a softer dollar, stemming from reduced geopolitical risk and the anticipated reopening of the Strait of Hormuz, are helping to calm inflation expectations,” said Tim Waterer, chief market analyst at KCM Trade. “This combination is providing the precious metal with its best tailwind in recent weeks though sustainability will depend on how durable the peace agreement proves to be.”
A sharp reversal for gold
Gold prices had fallen about 20% since the start of the U.S.-Israeli war against Iran in late February. The effective closure of the Strait of Hormuz had led to a sharp increase in global oil prices, stoking inflation fears and raising expectations that interest rates would stay higher for longer. As a non-yielding asset, bullion typically loses appeal in a high-interest-rate environment.
Rate hike expectations recede
Markets have already scaled back expectations for a U.S. rate hike in December to 48% after the peace deal, down from 69% last week, according to the CME FedWatch tool. Investors are now awaiting the Federal Reserve’s policy decision and accompanying remarks the first under Chair Kevin Warsh on Wednesday, with rates widely expected to remain unchanged.
“Currency debasement concerns, fiscal risks, and ongoing geopolitical fragmentation continue to underpin long-term demand for gold. A moderation in energy-led inflation could help these themes regain traction,” OCBC said in a note.
Broader precious metals rally
Other precious metals also gained sharply in gold’s wake:
-
Spot silver rose 3.6% to $70.39 per ounce.
-
Platinum gained 3.3% to $1,773.70.
-
Palladium climbed 3.3% to $1,324.75.
Analysts note that a sustained peace could further reduce safe-haven demand for the dollar and Treasury bonds, potentially extending gold’s recovery but any renewed hostilities would likely reverse these moves just as quickly.
Our Pashto-Dari Website
Support Dawat Media Center
If there were ever a time to join us, it is now. Every contribution, however big or small, powers our journalism and sustains our future. Support the Dawat Media Center from as little as $/€10 – it only takes a minute. If you can, please consider supporting us with a regular amount each month. Thank you
DNB Bank AC # 0530 2294668
Account for international payments: NO15 0530 2294 668
Vipps: #557320
Comments are closed.