Gold experienced a significant rally, climbing over 4% to approximately $4,250 an ounce. This marked the largest single-day gain for the precious metal since February. The surge was primarily driven by growing optimism surrounding a potential agreement to reopen the Strait of Hormuz, a critical waterway. This progress in turn lowered expectations for further interest rate hikes by the Federal Reserve.
The prospect of a Hormuz deal also led to a decline in the US dollar and a drop in US oil prices. West Texas Intermediate (WTI) fell towards $75.50, its lowest in three weeks. Lower oil prices ease inflationary pressures, consequently reducing the likelihood of the Fed raising interest rates. The CME FedWatch Tool indicated that the probability of a September Fed rate hike decreased to 57.1% from 67.2% the previous day.
In addition to the geopolitical developments, gold's ascent was bolstered by a breach of a key technical resistance level, which triggered further buying. US President Donald Trump stated that a Hormuz deal could materialize as early as Wednesday. The broader market sentiment was lifted by these developments, contributing to the weakened US dollar and lower Treasury yields, both of which are supportive factors for gold.
