Gold and silver prices have risen following a provisional agreement between the United States and Iran aimed at ending hostilities and restoring passage through the Strait of Hormuz. This development has alleviated global inflation concerns and may reduce market expectations for interest rate hikes.
Spot gold prices jumped as much as 3.6%, nearing $4,370 per ounce, while silver surged up to 4.9%. Oil prices declined. The US President stated on Monday that vessels were already transiting the strait, with "many fully loaded with oil." Washington and Tehran still need to finalize the last steps related to a memorandum of understanding, which is scheduled to be signed on-site in Switzerland this Friday.
Christopher Wong, a foreign exchange strategist at OCBC, commented, "This makes the macro backdrop for gold less unfavorable. That said, the deal still needs to be formally finalized, so the market could remain quite volatile in the interim."
Since the war broke out in late February, gold has largely moved inversely to crude oil, as rising energy prices have fueled inflation, prompting central banks to maintain higher interest rates for longer, which diminishes the appeal of the non-yielding precious metal. Since the conflict began, the gold price has fallen approximately 18%, hitting its lowest level since November last week.
"For gold to regain stronger upward momentum, it likely requires a more sustained improvement in the external environment, including lower yields, lower oil prices, and clearer evidence that the market's repricing of the Federal Reserve's hawkish stance has peaked," Wong added.
Precious metals traders are also awaiting a series of central bank interest rate decisions this week, including the first meeting under new Federal Reserve Chair Kevin Warsh. Market expectations lean towards a rate hike later this year.
As of 3:09 p.m. New York time, spot gold was up 2.5% at $4,322.91 per ounce. Silver gained 3.0%, while platinum and palladium also advanced. The Bloomberg Dollar Spot Index fell 0.1%.
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