Key highlights:
- Gold rallied to its highest level since July 7
- Demand for the metal grew thanks to lower oil prices and a weaker U.S. dollar
- Investors are also watching the U.S. jobs data release for clues on the next interest rate decisions
The that hinted at progress toward a deal that could reopen the Strait of Hormuz.
Officials in Qatar said mediators are close to ending the conflict. Other reports also said the United States, Iran, and Oman were close to reaching an agreement. Tehran, however, denied negotiations with Washington. But these updates have raised hopes that the tension could be easing.
As a result of this, there was a sharp fall in oil prices. The prospect of supply disruptions easing lowered energy costs, which could reduce inflation pressure. A similar event happened just a week ago when the U.S. and Iran agreed on a pause on attacks over the Strait of Hormuz.
Lower inflation expectations also changed market views on interest rates. Investors are pricing in a smaller chance that the Federal Reserve would make rate hikes. The Fed kept rates steady in its July FOMC meeting despite inflation fears.
CME Group data shows that the probability of a September rate hike fell from 67% to 56%. There is an expectation of at least one rate hike before the year ends.
Source: CME FedWatch Tool
A weaker U.S. dollar also helps Gold’s bull case. The metal is priced in dollars, so a softer greenback makes it cheaper for buyers using other currencies, which then boosts global demand.
Market analyst Kelvin Wong of OANDA said the link between oil and the precious metal is very important because of its effect on inflation. He added that the more tensions east in the Middle East, the better it gets for asset prices.
Investors turn attention to U.S. jobs data
The U.S jobs data is also set to be released this week. The ADP private employment report is due first, followed by the nonfarm payrolls report on Friday. These reports could give the Federal Reserve more information on the strength of the labor market before making its next policy decision.
Philadelphia Federal Reserve President Anna Paulson said she is “open-minded” about interest rate decisions, adding that the new economic data will guide the central bank’s next move. Higher interest rates usually reduce the investment value of Gold because the metal does not pay interest.
Notably, other precious metals also increased on Wednesday. The silver price gained 4% to $61.8 per ounce while platinum rose 1.4% to $1,758.35, its highest level since mid-June.
Investment demand has also stayed positive. Holdings in the SPDR Gold Trust increased by 3.43 metric tons to 1,009.30 metric tons.
Source:: Gold Hits One-Month High with 3% Daily Surge as U.S.-Iran Peace Hopes Ease Inflation Fears