Gold Surges Amid Speculation of Hormuz Deal
Gold prices rose after officials signaled the US was moving closer to a deal with Iran to reopen the Strait of Hormuz and restore oil flows, easing inflation concerns. Bullion briefly rose as much as 1.6% to around US$4,580 per ounce, reversing last week's small decline.
US President Donald Trump said on Monday (May 25) that talks with Iran on a temporary agreement to extend the ceasefire and ease shipping restrictions in the strategic waterway were "going well." During the same session, oil prices fell about 5%, with Brent falling back below US$100 per barrel, while the US dollar weakened.
The combination of weaker oil and a weaker dollar was a major driver for gold. A weaker dollar makes gold cheaper for non-US buyers because the precious metal is traded in dollars.
At 2:30 p.m. in New York, spot gold rose 1.4% to US$4,570.50 per ounce. Silver rose 3.4% to US$78.08 per ounce, while platinum and palladium also strengthened. The Bloomberg Dollar Index fell about 0.3%.
Although gold's rally recovered, some market participants appeared to be holding back as key details regarding Iran's nuclear program remained unclear. Liquidity factors were also a concern, given that several major markets, such as the US, UK, Hong Kong, and South Korea, were closed for holidays, making movements more sensitive to headlines.
On the other hand, more structural pressure still comes from interest rate expectations. Gold is said to have fallen about 13% since the conflict began in late February, when a surge in energy prices prompted markets to raise bets on a rate hike due to inflation concerns. Money markets are now pricing in the Federal Reserve's near certainty of starting interest rate hikes in December, a dynamic that tends to weigh on gold, as it offers no yield.
The change in Fed leadership is also in focus, with investors awaiting clues on new Fed Chairman Kevin Warsh's outlook on the economy. Several market participants believe that gold still has "foundations" as a hedge against geopolitical conflict, but faces challenges from high interest rates, a relatively strong dollar, and persistent inflation expectations.
The next variables to monitor are the clarity of the details and implementation schedule of the US-Iran agreement (especially the nuclear issue), the direction of oil prices after the holidays, and changes in market pricing regarding the Fed's interest rate trajectory, which will determine gold's room to move after the rally based on the weakening dollar.
Source: newsmaker.id
