(Bloomberg) — Gold advanced as optimism surrounding US-Iran efforts to end the Middle East conflict eased bets on higher interest rates for longer.
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Bullion gained as much as 1.6% after President Donald Trump said the US is in the “final stages” with Iran. The dollar and Treasury yields retreated, lifting gold as it’s priced in the US currency and pays no interest. Oil slipped further while equities rallied.
Trump said “we’ll see what happens” with Iran, adding that a deal will be made or “we’re going to do some things that are a little bit nasty, but hopefully that won’t happen,” according to a White House pool report.
A potential end to the war and the reopening of the Strait of Hormuz would ease inflation concerns driven by elevated energy prices, potentially reducing expectations that global central banks will keep interest rates higher for longer to contain inflation. That would be positive for non-yielding bullion, which typically performs well in a lower-rate environment.
Gold has traded in a narrow range since falling sharply in the early days of the Middle East conflict, as investors weigh higher rates against the prospect of a high-inflation, low-growth scenario, which they argue should benefit gold. Bullion is down about 14% since the war erupted in late February.
“The current environment highlights an increasingly important distinction between what traders are focusing on in the short term and what investors continue to monitor over the long term,” Ole Hansen, head of commodity strategy at Saxo Bank AS, said in a note.
Spot gold rose 1% at $4,534.33 an ounce as of 1:07 p.m. in New York. Silver increased 3.1% to $76.00 an ounce. Platinum and palladium also gained. The Bloomberg Dollar Spot Index, a gauge of the US currency, slipped 0.2%.
(Corrects to remove references to talks, per pool report, in headline and first two paragraphs.)
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