Gold prices climbed on Monday after U.S. officials signaled progress toward a deal with Iran to reopen the Strait of Hormuz and restore oil flows, tempering inflation concerns. Bullion rose as much as 1.6% to around US$4,580 an ounce, erasing last week's modest decline.
Market Reaction to Iran Deal Prospects
U.S. President Donald Trump stated on Monday that talks with Iran regarding an interim agreement to extend their ceasefire and ease restrictions on passage through the critical waterway were 'proceeding nicely.' This development prompted a 5% drop in oil prices, with Brent crude falling below US$100 a barrel, while the U.S. dollar retreated. A weaker greenback typically makes gold cheaper for most buyers, as the precious metal is priced in the currency.
However, some analysts urge caution. Christopher Wong, a strategist at Oversea-Chinese Banking Corp., noted that key details about Iran's nuclear program remain unresolved, which may temper enthusiasm for gold's rebound. He also pointed out that markets in the U.S., United Kingdom, Hong Kong, and South Korea were closed for holidays, resulting in thinner liquidity and potentially exaggerated price movements.
Gold's Performance Amid Geopolitical Tensions
Since the conflict began in late February, gold has slumped approximately 13%. Traders have ramped up rate-hike expectations as the Iran war sent energy prices soaring, stoking inflation fears. Money markets are now pricing in a near-certainty that the Federal Reserve will begin raising interest rates by December. Higher borrowing costs weigh on gold, which does not pay interest, making it less attractive relative to yield-bearing assets.
As new Fed Chair Kevin Warsh takes the helm, investors will be scrutinizing his economic outlook for clues on monetary policy direction. The transition comes at a time when the central bank faces the dual challenge of controlling inflation while supporting economic growth.
Expert Views on Gold's Outlook
Antonio Di Giacomo at XS.com highlighted that while gold maintains a 'solid foundation' as a safe-haven asset amid geopolitical turmoil, it also faces 'a significant challenge' from elevated interest rates, a still-strong dollar, and persistent inflation expectations. 'Although the greenback showed slight pullbacks in some recent sessions, it remains supported by its role as a safe-haven currency and by the perception that the U.S. economy continues to demonstrate greater resilience against energy or geopolitical shocks,' he wrote in a note. For gold, 'upside moves may remain limited and subject to sharp corrections.'
Broader Precious Metals Market
Spot gold was up 1.4% at US$4,570.50 an ounce as of 2:30 p.m. in New York. Silver rose 3.4% to US$78.08 an ounce, while platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, fell 0.3%.
Despite the recent uptick, strategists warn that yields may stay high even if the Iran war ends, and Deutsche Bank and JPMorgan see a weaker Canadian dollar as inflation cools. These factors could continue to pressure gold prices in the near term.
