Gold extended gains for a third straight day as prospects for an interim US-Iran agreement eased concerns over inflation and interest rates.
Spot gold climbed nearly 4% to approach US$4,230 ($6,000) an ounce, its highest level since mid-June. Other precious metals also advanced, with silver leading the gains.
The rally follows reports that the US may be close to reaching an agreement with Iran to reopen the Strait of Hormuz, sending oil prices and the US dollar lower.
The conflict in the Middle East has unsettled markets in recent months, as the closure of the Strait of Hormuz disrupted a key global oil shipping route and sent energy prices soaring. That fuelled inflation concerns and increased expectations that interest rates could rise further this year, reducing the appeal of non-yielding assets such as gold.
Since the conflict escalated in late February, gold has fallen by more than 20% as markets priced in a greater likelihood of interest rate hikes, erasing all of this year’s gains.
While the US Federal Reserve left interest rates unchanged at its July meeting, markets continue to expect tighter monetary policy later this year.
Earlier, Kansas City Federal Reserve President Jeff Schmid said “some sort of” monetary policy tightening is needed to bring inflation back to the central bank’s 2% target. Traders are currently pricing in nearly a 60% chance of a rate hike in September, according to the CME FedWatch Tool.
Hamad Hussain, a climate and commodities economist at Capital Economics, told CNBC that Fed rate hikes in the coming months “would result in gold prices falling and settling below $4,000 per ounce before the end of this year.”
Despite the recent rally, many analysts remain constructive on gold’s longer-term outlook, supported by strong investment demand and continued buying from central banks. Citi analysts expect gold to trade sideways in the near term before rebounding to around US$4,500 an ounce in the fourth quarter.
Write to Jackson Chen at Mining.com.au
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