Gold rose more than 2 percent in early trading on Monday after U.S. and Iranian officials said the two countries had reached an agreement to end their conflict, pushing down oil prices and easing concerns about inflation and rising interest rates.
Price update
Gold rose 2.5 percent in spot trading to $4,322.87 an ounce by 0312 GMT, its highest level since June 9. U.S. gold futures for August delivery also climbed 2.5 percent to $4,344.80, according to Reuters data.
US and Iranian officials said on Sunday that the two countries had agreed on a framework to end their war, lift the US embargo on Iran, and reopen the Strait of Hormuz.
Pakistani Prime Minister Shehbaz Sharif stated in a post on the X platform that the agreement will be officially signed on Friday in Switzerland.
Oil prices fell by more than four percent and the dollar dropped to its lowest level in 10 days following the announcement of the agreement.
Tim Waterer, chief market analyst at KCM Trade, told Reuters: “Lower oil prices and a weaker dollar due to easing geopolitical risks and expectations of the reopening of the Strait of Hormuz are helping to calm inflation expectations.”
He added that this combination provides the precious metal with the best support it has seen in the past few weeks, but its continuation will depend on how well the peace agreement holds.
Gold prices have been under pressure since the start of the US-Israeli war on Iran in late February.
The de facto closure of the Strait of Hormuz caused a sharp rise in global oil prices, fueling concerns about inflation and reinforcing expectations that interest rates will remain high for a longer period.
Although gold is seen as a hedge against inflation, it loses its appeal when interest rates rise because it does not generate any return.
The CME Group’s FedWatch tool shows that traders now expect the Federal Reserve (the US central bank) to raise interest rates by December, following the peace agreement, at 48 percent, down from 69 percent last week.
As for other precious metals, silver rose 3.6 percent to $70.39 an ounce in spot trading, platinum climbed 3.3 percent to $1,773.70 and palladium gained 3.3 percent to $1,324.75.
