Gold extended its biggest gain in six months as signs of progress in reopening the Strait of Hormuz eased energy-led pressure on the Federal Reserve to raise interest rates.
Bullion rose as much as 1.3% to briefly surpass $4 300 an ounce, after jumping 4.1% in the previous session, the biggest rise since February 3. Iran said it has reached agreement with Oman on a proposed shipping route through the strait, raising the prospect of some energy flows resuming through the critical waterway. Oil fell.
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The route would be temporary and remain active for “two to four months,” Iranian Deputy Foreign Minister Kazem Gharibabadi told domestic media, adding that “this understanding does not mean the full reopening” of the strait.
President Donald Trump said the US’s negotiations with Iran were ongoing and he will “see what happens,” adding he would prefer to make a deal with the Islamic Republic than end the war militarily. Earlier, he said a deal was possible as early as Wednesday US time.
Signs of progress in ending the more than five-month conflict has markets now fully pricing in only a single US rate increase by year-end, down from two as recently as last week. Less monetary tightening is generally positive for precious metals including gold, which generate no yield.
Gold has fallen by nearly a fifth since the US-Iran war began in late February. The conflict sent energy prices soaring, stoked inflationary pressures and raised the likelihood that rates will stay higher for longer.
“Macro headwinds being pushed out on the horizon, along with US-Iran deal hope, have put some major wind in the precious metals’ sails,” TD Securities analysts including Ryan McKay wrote in a note. “Macro discretionary funds have more than doubled their positions since June,” they added, building on support from top funds on the Shanghai Futures Exchange and inflows to gold-backed exchange-traded funds in Asia.
However, gold’s challenge is not entirely over, the analysts said, noting: “A still extremely tight energy market will remain a major hurdle for a renewed bull run.”
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Fed Governor Lisa Cook repeated on Wednesday that she is ready to raise rates if inflation doesn’t slow, warning the central bank may not have the luxury of waiting before it returns to its 2% target. Despite backing the decision to hold rates steady at the Fed’s July policy meeting, she cautioned that the longer inflation remained above the goal, the tougher it would be to rein it in.
Spot gold climbed 1% to $4 287.95 an ounce as of 9:48 a.m. in Singapore. Silver rose 0.2% to $62.19 an ounce, after jumping more than 4% in the previous session. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.1% after ending Wednesday down 0.2%.