Gold price rebounds on US-Iran deal hopes

Gold bounced back on Wednesday to approach a two-week high, as optimism over a U.S.-Iran peace deal eased concerns over inflation and an extended period of high interest rates.

Spot gold prices surged by the most in nearly a month, rising as much as 3.6% to surpass $4,700 an ounce. Three-month gold futures saw similar gains, trading at about $4,710 in New York. Silver, too, rose by more than 6% to almost $78 per ounce.

The rebound follows reports that Iran is reviewing a U.S. proposal to end the war in ‌the Gulf, which has sent energy prices soaring. The inflationary pressures have largely reduced the chances of central banks cutting interest rates. Non-yielding assets like gold benefit when investors don’t have options elsewhere offering far greater interest rates. 

During the 10-week-long conflict, bullion saw its value decline by about 11%, as its traditional role as a haven asset was overshadowed by the high-rate concerns.

“Gold prices had rallied above $4,700 per oz. at the time of writing on renewed hopes of a U.S.-Iran peace deal, with silver and platinum group metals outperforming on the return of risk appetite,” BMO Capital Markets commodities analysts Helen Amos and George Heppel said in a note on Wednesday. “Clearly conflict volatility is still front and centre.”

Inflation concerns ease

It was different last week when the VanEck Gold Miners exchange-traded fund (ETF) (NYSE: GDX) declined 7.7% vs a 2% fall in spot gold prices, BMO said. It was the second consecutive week of outflows from gold ETFs — $735 million of net outflows — driven by sellers in North America ($790 million) and China ($113 million). April’s ETF flows remained overall positive, but total holdings were below pre-conflict peaks, BMO said. 

While the benchmark oil price fell below $100 a barrel on Wednesday, there was still uncertainty on the movement of ships through the Strait of Hormuz after the U.S. suspended a plan to escort vessels.

The U.S. will end its military campaign “assuming Iran agrees to give what has been agreed to, which is, perhaps, a big assumption,” U.S. President Donald Trump posted on social media.

In the near term, investors will look at the series of incoming U.S. data releases, including Friday’s employment report, to gauge the Federal Reserve’s monetary policy.

For the rest of the year, market participants, including those from major banks, are optimistic that gold will rise higher, with or without rate cuts. A key driver is expected to be official-sector purchases of the metal, which according to the World Gold Council rose last quarter despite some central banks reducing their holdings.

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