Gold prices have seen a significant upward movement, reaching an intraday high of $4,179.53 an ounce and trading around $4,250 an ounce, marking its largest jump since February. This surge is primarily attributed to growing prospects of an interim deal to reopen the Strait of Hormuz, which is expected to alleviate energy-driven inflation pressures. The anticipation of this deal has led to a reduction in market expectations for Federal Reserve rate hikes, with traders now fully pricing in only a single US rate increase by year-end, down from two previously.
The potential Hormuz deal, with US President Donald Trump indicating it could materialize as early as Wednesday, is seen as a key factor in driving down crude oil prices. West Texas Intermediate (WTI), the US oil benchmark, dropped nearly 5% to $76.09 per barrel, and Brent futures had previously jumped more than 20% due to earlier conflict. Lower oil prices contribute to expectations of reduced inflation, which in turn diminishes the likelihood of aggressive monetary tightening by the Fed. This environment is generally favorable for non-yielding assets like gold.
Despite Federal Reserve officials keeping policy unchanged for the fifth consecutive time, three dissenters at last week's meeting favored a rate hike, highlighting ongoing concerns about inflation. However, the prevailing sentiment in the market, bolstered by the Hormuz deal prospects and a declining US dollar, has led to a bullish turn for gold. Spot gold traded 2.4% higher at $4,175.97 an ounce, while silver also saw a substantial gain of 3.8% to $61.84 an ounce. Chinese institutional investors have also shown increased interest, contributing to 14 straight days of inflows into gold-backed exchange-traded funds.
