Gold rises 1% as oil declines and diplomacy between the US and Iran is assessed
Gold prices rose by more than one percent yesterday, as investors assessed diplomatic efforts to de-escalate tensions between the United States and Iran. These developments could ease inflation risks stemming from higher oil prices and influence the path of the Federal Reserve (the US central bank) regarding interest rates.
Spot gold surged 1.6 percent to $4,071.59 per ounce. US gold futures for August delivery rose 1.5 percent to $4,076.
Ilya Spivak, Head of Global Macroeconomics at Testi Live, said, “It appears gold is attempting to establish a price base around the $4,000 level and will try to resume its upward trajectory from there.”
He added, “It seems that news from the Middle East has some impact, albeit temporary.” Oil prices fell today as markets balanced reports of mediation efforts between the US and Iran against renewed attacks between the two sides and Houthi threats in Yemen to impose a naval blockade on Saudi Arabia.
A senior Iranian official told Reuters yesterday that Tehran had received a ceasefire proposal from mediators for a 10-day period, in an attempt to salvage a temporary agreement aimed at paving the way for a permanent deal to end the war. The latest escalation in the Middle East conflict pushed oil prices up on Monday to their highest level in over a month, with growing voices among policymakers arguing that raising interest rates may be necessary to combat persistent inflation.
Higher interest rates increase the opportunity cost of holding gold, which yields no return. The Federal Reserve is widely expected to keep interest rates unchanged next week. According to CME Group’s FedWatch Tool, traders see a 64 percent probability of an interest rate hike in September.
Regarding other precious metals, spot silver rose 4.5 percent to $58.96 per ounce, platinum gained 2.3 percent to $1,630.21, and palladium increased 2.8 percent to $1,288.02.
Khaled Al-Khatib, Head of Global Market Analysis at MH Markets, stated that gold remains in a volatile range but maintains a long-term upward trend, supported by ongoing geopolitical tensions. He noted that the precious metal managed to hold above the $4,000 mark despite escalating war, rising oil prices, and increasing expectations of rate hikes, considering these levels suitable for long-term investors.
In an interview with Arabiya Business, he added that Exchange-Traded Funds (ETFs) offer a more flexible and cost-effective investment vehicle compared to buying physical gold.
In the currency market, Al-Khatib confirmed that the US dollar continues to maintain its strength above the 100 level, despite US inflation data coming in lower than expected, supported by concerns related to rising oil prices.
Regarding the Japanese yen, he pointed out that trading the dollar above 162 yen has not yet prompted Japanese authorities to intervene, anticipating potential action if the rate approaches 164-165 yen. However, he emphasized that any intervention would remain limited in impact unless accompanied by monetary tightening from the Bank of Japan and a narrowing of the gap with the US Federal Reserve.
