Gold rose after the US and Iran announced an interim deal to end hostilities and reopen the Strait of Hormuz, easing global inflation fears and potentially tempering expectations for interest-rate hikes.
Bullion jumped as much as 2.7% to above $4,330 an ounce after US President Donald Trump said on social media that “The Deal with the Islamic Republic of Iran is now complete.” Iran’s deputy foreign minister confirmed the agreement, which will be signed on Friday in Switzerland. The precious metal had fallen 2.5% last week.
The US and Iran agreed not to attack each other and undertake a 60-day period of negotiations to dismantle Tehran’s nuclear program, while the Islamic Republic will also get relief from sanctions targeting its overseas oil sales.
Brent crude oil slumped more than 4% on expectations energy flows through Hormuz will resume as both Iran and the US end their blockades of the crucial waterway. Trump said the passage would open when the deal is signed. A gauge of the dollar weakened.
“This makes the macro backdrop less hostile for gold,” said Christopher Wong, an FX strategist at Oversea-Chinese Banking Corp. “That said, the deal needs to be formalized, and as such we may still see choppy trades in the interim.”
“For gold to regain stronger upside momentum, we likely need a more durable improvement in the external environment, which would include softer yields, softer oil prices and clearer evidence that Fed hawkish repricing has peaked,” Wong added.
Gold has moved largely in an inverse relationship to oil since the war began in late February due to concerns that rising energy prices would fuel inflation and prompt central banks to keep interest rates higher for longer, which has reduced the appeal of non-yielding precious metals. Bullion is down around 18% since the conflict started.
The pact came as traders wait for a series of central bank decisions this week, with the Federal Reserve set to meet under new chair Kevin Warsh for the first time. Market expectations are geared toward a rate hike later this year.
Spot gold climbed 2.7% to $4,333.20 an ounce as of 10:48 a.m. in Singapore. Silver jumped 4%, while platinum and palladium also advanced. The Bloomberg Dollar Spot Index fell 0.2%.
Gold-related stocks in Asia-Pacific followed bullion prices higher, with Australia’s Northern Star Resources Ltd. jumping as much as 8.2% in Sydney, Zijin Mining Group Co. up 8.7% at one point in Hong Kong, and OceanaGold Philippines Inc. climbing as much as 8.5%.
