Gold advanced after US President Donald Trump announced that fresh negotiations with Iran would commence, raising hopes for a diplomatic breakthrough that could ease energy-driven inflation. Spot gold rose by 0.6% to $4,069.34 an ounce as of 8:30 a.m. in Singapore. Silver also gained 0.9% to $58.10 an ounce, with platinum and palladium showing similar increases. This rally marked gold's first monthly gain since February, closing out July with a 1% increase.
The prospect of eased tensions between the US and Iran, which led to a more than 7% drop in benchmark Brent crude on Monday morning in Asia, reduced the pressure for central banks to raise interest rates to combat inflation. Geopolitical instability typically boosts demand for safe-haven assets like gold, but the current conflict had also fueled inflation expectations, a headwind for non-interest-bearing precious metals. Ahmad Assiri, a market strategist at Pepperstone Group Ltd., noted that gold received a "second relief card" from Trump's decision to delay strikes on Iran and the Federal Reserve's "soft hawkish tone" last week.
Bullion traders are also closely monitoring the Federal Reserve's next moves. The Fed had voted 9-3 to hold interest rates steady last Wednesday, with the target rate remaining between 3.50% and 3.75%. However, some policymakers dissented, advocating for an immediate quarter-point increase due to inflation exceeding the central bank's 2% objective. The decline in oil prices might weaken the argument for further rate hikes, but policymakers will require more evidence of easing broader price pressures, with upcoming US job data and the July employment report being crucial factors.
