Gold rose 2% on Monday after U.S. and Iran officials said they had reached a preliminary deal to end their conflict, pushing oil prices lower and easing concerns about inflation and higher interest rates.
Spot gold was up 2% at $4,304.11 per ounce, as of 0122 GMT, hitting its highest level since June 9. U.S. gold futures for August delivery rose 2% to $4,325.20.
U.S. and Iranian officials said on Sunday they had agreed on a framework to end their war, halt the U.S. blockade of Iran and reopen the Strait of Hormuz.
The pact will be officially signed on Friday in Switzerland, Pakistani Prime Minister Shehbaz Sharif said in a post on X.
The U.S. dollar fell to a 10-day low, making greenback-priced bullion cheaper for other currency holders, while oil prices slipped more than 4%. [FRX/] [O/R]
"Lower oil prices and a softer dollar, stemming from reduced geopolitical risk and the anticipated reopening of the Strait of Hormuz, are helping to calm inflation expectations," said Tim Waterer, chief market analyst at KCM Trade.
"This combination is providing the precious metal with its best tailwind in recent weeks, though sustainability will depend on how durable the peace agreement proves to be."
Gold prices have fallen about 20% since the start of the U.S.-Israeli war against Iran in late February. The effective closure of the Strait of Hormuz has led to a sharp increase in global oil prices, stoking inflation concerns and raising expectations of interest rates staying higher for longer.
Though traditionally seen as an inflation hedge, gold loses appeal in a high interest-rate environment as the opportunity cost of holding the non-yielding asset increases.
Markets have scaled back expectations for a U.S. interest rate hike in December to 47% after the peace deal, down from 69% last week, according to the CME FedWatch tool. [FEDWATCH]
"Currency debasement concerns, fiscal risks and ongoing geopolitical fragmentation continue to underpin long-term demand (for gold). A moderation in energy-led inflation could help these themes regain traction," OCBC said in a note.
Spot silver rose 3.1% to $70.07 per ounce, platinum gained 3.1% to $1,771.27 and palladium climbed 3.3% to $1,325.76.
