Gold climbed on Tuesday as cooling US-Iran tensions eased inflation fears and reduced pressure on the Federal Reserve to raise interest rates.
Spot prices advanced nearly 1% to approach US$4,100 ($5,830) an ounce, a level it has failed to hold over the past three weeks.
The rise coincides with a decline in oil prices amid talks of ending the Middle East conflict with the diplomatic support of Qatar.
Since the US-Iran war began, gold has fallen by more than 20% as soaring energy prices stoked inflationary pressures and increased the likelihood of interest rate hikes, diminishing the appeal of precious metals.
While the Fed opted to keep rates unchanged at the end of July, markets see the decision as delaying the inevitable. Traders are currently pricing in a 60% chance of policymakers raising rates at the September meeting.
This week, investors are monitoring the impending release of US jobs reports for further clues on the Fed’s monetary path.
“Anything that shows economic weakness is probably accretive to gold, mainly because it reduces the likelihood or the need for the central bank to act on interest rates,” Bart Melek, global head of commodity strategy at TD Securities, told Reuters.
Gold may rebound
Meanwhile, central banks continue to accumulate gold following a sharp decline in prices in recent months, according to the World Gold Council, which still sees gold’s long-term uptrend intact.
“Re-accelerating central-bank gold demand, led by China, should help gold prices rebound despite likely temporary downside price pressure from energy and rates markets,” Goldman Sachs Group said in a note earlier.
Those at Citi are also optimistic about gold rebounding later in the year, citing US$4,500 an ounce as a possibility.
“Our base case is for the US-Iran conflict to end and Hormuz flows normalising and, with this, lower real interest rates and a weaker dollar and stronger investor interest in gold returning,” Citi analysts wrote.
Write to Jackson Chen at Mining.com.au
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