Gold prices rose sharply on Wednesday, with futures moving above $4,200 an ounce after improving prospects for an agreement to reopen the Strait of Hormuz reduced inflation concerns and prompted investors to reassess the outlook for US interest rates.
At 02:07 ET (06:07 GMT), spot gold (XAU/USD) gained 2.1% to $4,162.79 per ounce, while Gold Futures climbed 1.7% to $4,222.92. Silver (XAG/USD) rallied 3.2% to $61.45 per ounce and platinum (XPT/USD) advanced 1.8% to $1,768.95.
Expectations of lower energy costs lift precious metals
Bullion extended its recent recovery as diplomatic efforts surrounding the Strait of Hormuz continued to gain momentum, reducing fears that prolonged disruptions to global energy supplies would keep inflation elevated.
Officials in Qatar confirmed that mediators had prepared a draft agreement aimed at restoring commercial shipping through the strategic waterway. Meanwhile, Axios reported that the United States, Iran and Oman were nearing an interim deal that US officials hoped to announce as early as Wednesday.
US Treasury Secretary Scott Bessent added to the positive sentiment by saying an agreement could be reached as soon as Tuesday or Wednesday.
The prospect of easing oil prices encouraged markets to reduce expectations for additional Federal Reserve tightening. Investors are now pricing in only one US rate increase before year-end, compared with expectations for two hikes just one week earlier.
A softer US dollar also supported demand for bullion by making precious metals more affordable for buyers using other currencies.
Federal Reserve outlook and Chinese buying remain key drivers
Gold has declined by more than 20% since the US-Iran conflict intensified in late February, when higher oil prices fuelled inflation concerns and strengthened expectations that interest rates would remain elevated.
Although the Federal Reserve left borrowing costs unchanged for a fifth straight meeting last week, three policymakers voted in favour of raising rates.
Philadelphia Federal Reserve President Anna Paulson said she remains “open-minded” about the future direction of monetary policy as officials continue to evaluate incoming economic data.
Kansas City Federal Reserve President Jeff Schmid also warned that higher interest rates could still be required to restore price stability, cautioning against assuming inflation generated by supply disruptions would fade quickly.
At the same time, investment demand from China continued to support the market. Bloomberg data showed Chinese gold-backed exchange-traded funds recorded inflows for a fourteenth consecutive trading session through Monday, marking their longest run since March.
The steady buying has helped gold remain comfortably above the important $4,000-an-ounce threshold, despite lingering uncertainty surrounding the Federal Reserve’s next policy moves.
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