(Bloomberg) — Gold and silver rallied after the US and Iran reached an interim deal to end hostilities and reopen the Strait of Hormuz, easing global inflation fears and potentially tempering expectations for interest-rate hikes.
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Bullion jumped as much as 3.6% to nearly $4,370 an ounce, with silver rising as much as 4.9%. Oil fell. US President Donald Trump claimed on Monday that ships, “many loaded up with oil,” are already moving through the strait. Washington and Tehran still need to decide on the final steps related to what they’re calling a memorandum of understanding, set to be physically signed in Switzerland on Friday.
“This makes the macro backdrop less hostile for gold,” said Christopher Wong, an FX strategist at Oversea-Chinese Banking Corp. “That said, the deal needs to be formalized, and as such we may still see choppy trades in the interim.”
Gold has largely moved in an inverse relationship to crude since the war began in late February, as higher energy prices fueled inflation and prompted central banks to keep rates higher for longer, dimming the appeal of non-yielding precious metals. Bullion is down about 18% since the conflict started, and last week touched the lowest since November.
“For gold to regain stronger upside momentum, we likely need a more durable improvement in the external environment, which would include softer yields, softer oil prices and clearer evidence that Fed hawkish repricing has peaked,” Wong said.
Precious metals traders are also waiting for a series of central bank decisions this week, with the Federal Reserve set to meet under new Chair Kevin Warsh for the first time. Market expectations are geared toward a rate hike later this year.
Spot gold climbed 2.5% to $4,322.91 an ounce as of 3:09 p.m. in New York. Silver jumped 3.0%, while platinum and palladium also advanced. The Bloomberg Dollar Spot Index fell 0.1%.
Shares of gold producers followed bullion prices higher, with top producer Newmont Corp. and No. 2-ranked Agnico Eagle Mines Ltd. rising more than 7.5% in New York. Barrick Mining Corp., the world’s third-largest producer, rose more than 6.5%.
–With assistance from Kanupriya Kapoor.
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