Gold prices jumped by 2% on Monday, reaching their highest level in nearly two weeks after the United States and Iran announced a preliminary agreement to end their conflict, a development that weakened the US dollar and eased concerns over inflation and future interest rate hikes.
Spot gold rose 2% to $4,304.11 per ounce by early trading, while US gold futures for August delivery gained 2% to $4,325.20. The rally came as investors reacted positively to signs of easing geopolitical tensions in the Middle East.
Officials from both Washington and Tehran confirmed on Sunday that they had agreed on a framework to end hostilities, lift the US blockade of Iran, and reopen the strategically important Strait of Hormuz.
Pakistan’s Prime Minister, Shehbaz Sharif, announced that the agreement is expected to be formally signed in Switzerland on Friday, marking a significant step toward restoring stability in global energy markets.
The prospect of renewed oil flows through the Strait of Hormuz, a critical route for global energy shipments, pushed oil prices down by more than 4%, reducing fears of prolonged inflationary pressure.
Weaker Dollar Supports Bullion Demand
The US dollar fell to a 10-day low following the announcement, making gold more affordable for investors holding other currencies and increasing demand for the precious metal.
Tim Waterer, Chief Market Analyst at KCM Trade, said the combination of lower oil prices and a softer dollar had created favorable conditions for gold.
“Lower oil prices and a softer dollar, stemming from reduced geopolitical risk and the anticipated reopening of the Strait of Hormuz, are helping to calm inflation expectations,” he said.
According to Waterer, the current environment is providing gold with its strongest support in recent weeks, although future gains will depend on the durability of the peace agreement.
Interest Rate Expectations Shift
The agreement has also altered market expectations regarding US monetary policy. Data from the CME FedWatch tool showed traders reducing expectations of a US interest rate hike in December to 47%, down from 69% a week earlier.
Lower expectations for interest rate increases generally benefit gold, as the metal becomes more attractive compared to interest-bearing assets.
Analysts at OCBC noted that despite improving geopolitical conditions, long-term support for gold remains intact due to concerns about currency depreciation, fiscal risks, and broader global economic uncertainties.
Other precious metals also recorded strong gains. Spot silver climbed 3.1% to $70.07 per ounce, platinum rose 3.1% to $1,771.27, while palladium advanced 3.3% to $1,325.76.
The latest market movements highlight how developments in global geopolitics continue to influence investor sentiment, commodity prices, and expectations for monetary policy across major economies.
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