SOUTH-EAST ASIA (Bloomberg): Gold and silver rallied after the US and Iran announced an interim deal to end hostilities and reopen the Strait of Hormuz, easing global inflation fears and potentially tempering expectations for interest-rate hikes.
Bullion jumped as much as 3% to above $4,345 an ounce, with silver climbing as much as 4.1%. President Donald Trump said he was authorizing the "toll free opening” of Hormuz, as well as ending a blockade of the Islamic Republic, with the strait to reopen when the deal is signed on Friday. Iran’s deputy foreign minister confirmed an agreement was reached. Oil dropped.
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 around 18% since the conflict started, and last week touched the lowest since November.
Under the deal, the US and Iran agreed not to attack each other and undertake a 60-day period of negotiations to dismantle Tehran’s nuclear program, while the Islamic Republic will also get relief from sanctions targeting its overseas oil sales.
"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.”
"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 added.
The pact came as traders wait 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 2.8% to $4,338.53 an ounce as of 9:53 a.m. in London. Silver jumped 3.7%, while platinum and palladium also advanced. The Bloomberg Dollar Spot Index fell 0.2%.
Gold-related mining stocks followed bullion prices higher. Australia’s Northern Star Resources Ltd. jumped about 8% in Sydney and Zijin Mining Group Co. rallied roughly 7% in Hong Kong. In North America, Barrick Mining Corp. and Newmont Corp. gained more than 4% in pre-market trading.
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