Gold prices surged more than 2 per cent on Wednesday to their highest level in one month as expectations of a potential US-Iran peace deal eased inflation concerns and supported demand for the precious metal.
Spot gold rose 2.3 per cent to $4,168.34 per ounce by 1113 GMT, reaching its highest level since July 7. US gold futures also gained 1.8 per cent to $4,227.40.
The rise followed comments from US President Donald Trump that his administration had held “very good discussions” with Iran during all-day negotiations on Tuesday, increasing expectations of a possible resolution to the five-month conflict.
Jamie Dutta, a market analyst at trading platform Nemo.money, said signs of a possible Gulf ceasefire agreement had pushed Treasury yields lower as investors reduced concerns over inflation.
“There are increasing signs of a Gulf ceasefire deal, which means Treasury yields are moving lower on easing inflation worries, which helps make non-yielding assets like gold more attractive,” Dutta said.
The US dollar remained under pressure, making dollar-denominated metals more affordable for investors holding other currencies. Meanwhile, the benchmark 10-year US Treasury yield fell to a one-week low.
Gold typically faces pressure in a high-interest-rate environment because it does not generate interest income, despite being viewed as a hedge against inflation.
Market participants are now pricing in a 57 per cent probability of a September rate hike, down from 67 per cent a day earlier, according to the CME FedWatch Tool.
However, Federal Reserve Bank of Kansas City President Jeff Schmid said some form of monetary policy tightening would be necessary to bring inflation, which remains above target levels, back to the Federal Reserve’s 2 per cent goal.
Hamad Hussain, a climate and commodities economist at Capital Economics, said concerns over the Fed’s credibility could ease as the central bank continues raising interest rates, potentially pushing gold prices below $4,000 per ounce before the end of the year.
Investors are now watching key US employment data, including the ADP employment report released on Wednesday and the July nonfarm payrolls report scheduled for Friday, for further indications of the Federal Reserve’s policy direction.
Other precious metals also recorded gains. Spot silver climbed 3.3 per cent to $61.50 per ounce, its highest level since July 7.
Platinum increased 1 per cent to $1,752.20 after earlier reaching its highest level since mid-June, while palladium rose 1.5 per cent to $1,373.35 after hitting a two-month peak.
The gains in precious metals came as major US stock indexes also advanced on Tuesday, with the Dow Jones Industrial Average and S&P 500 each rising by about 1.75 per cent to close at record highs.
