Gold prices advanced after officials signaled that the United States was nearing a deal with Iran to reopen the Strait of Hormuz and restore oil flows, easing inflation fears. Bullion rose as much as 1.6% to around US$4,580 an ounce, erasing last week's small decline.
US-Iran Talks Progress
U.S. President Donald Trump on Monday said talks with Iran over an interim deal to extend their ceasefire and ease restrictions on passage through the crucial waterway were “proceeding nicely.” The prospect of a deal helped lower oil prices by 5% in the session, with Brent falling below US$100 a barrel, while the dollar retreated. A weaker greenback tends to make bullion cheaper for most buyers, as it is priced in the currency.
Market Reaction
Spot gold was up 1.4% at US$4,570.50 an ounce at 2:30 p.m. in New York. Silver was 3.4% higher at US$78.08 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, fell 0.3%.
Still, there may be some reluctance to chase gold’s rebound given key details around Iran’s nuclear program are still missing, according to Christopher Wong, a strategist at Oversea-Chinese Banking Corp. Markets in the U.S., United Kingdom, Hong Kong, and South Korea were closed for holidays on Monday, resulting in “thinner holiday liquidity,” he said.
Gold's Performance Amid Conflict
Bullion has slumped about 13% since the conflict began in late February. Traders have ramped up rate-hike bets as the Iran war sent energy prices soaring, fanning inflation concerns. The money market is pricing in that the Federal Reserve is virtually certain to start raising rates by December. Higher borrowing costs weigh on bullion, which doesn’t pay interest.
As the new Fed Chair Kevin Warsh takes the helm, investors will be looking for clues on his view on the economy.
Outlook for Gold
While gold continues to maintain a “solid foundation” as a haven asset in an environment of geopolitical conflict, the precious metal also faces “a significant challenge” from elevated interest rates, a still-strong dollar and persistent inflation expectations, according to Antonio Di Giacomo at XS.com.
“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 Monday note. For gold, “upside moves may remain limited and subject to sharp corrections.”
