Gold rose after negotiators announced progress in talks between the United States and Iran to reach a lasting solution to the war that has rattled global markets.
The precious metal rose as much as 1.6% to surpass $4,220 an ounce, erasing losses from last week, after Qatar and Pakistan said in a joint statement that encouraging progress had been made in the first round of high-level peace talks in Switzerland. They said the talks would continue throughout the rest of the week, easing concerns after US President Donald Trump had earlier issued a new threat to strike Iran.
Among other things, a line of communication was established between Tehran and Washington with the aim of securing a safe passage for commercial vessels through the Strait of Hormuz.
Oil prices fell on Monday, but crude continued to flow through the Strait of Hormuz over the weekend. The United States and Iran signed a memorandum of understanding last week that initiated a de-escalation process and opened a 60-day window for further talks.
Expectations of an interest rate hike are putting pressure on gold.
Gold has fallen for three consecutive weeks and is down more than 20% since the war began at the end of February. The near-closure of the Strait of Hormuz has choked off oil and natural gas flows and pushed up energy prices, increasing the likelihood that central banks will raise borrowing costs to combat inflation. This poses headwinds for precious metals, which do not pay interest.
New Federal Reserve Chairman Kevin Warsh adopted a hawkish tone on inflation during his first monetary policy meeting last week, without giving any clear indication of the future path of interest rates. Looking ahead, traders will be watching the US personal consumption expenditures price index due on Thursday, which is expected to show an acceleration.
Gold rose 0.8% to $4,189.23 an ounce at 10:00 AM Singapore time. Silver climbed 2% to $66.21 an ounce, after falling 4.6% last week. Platinum and palladium also advanced. The Bloomberg Dollar Index, a measure of the US currency, rose 0.1%.
