Gold Set for Best Week in Four

Gold fell toward $4,500 an ounce on Thursday as hopes for a US-Iran peace deal faded following reports that Iran’s Supreme Leader Ayatollah Mojtaba Khamenei issued a directive ordering the country’s uranium to remain on Iranian soil. The directive contradicted Israeli officials’ claims that Iran’s highly enriched uranium would need to be transferred out of the country as part of any peace deal, according to Reuters. Meanwhile, Iran is reportedly restoring its military capacity at a faster pace than expected, stoking fears of a renewed conflict in the Middle East. The prospect of a prolonged conflict sent oil prices back toward four-year highs, adding to inflation concerns and raising expectations that central banks may need to tighten monetary policy. Also, minutes from the Federal Reserve’s latest policy meeting showed that most officials believe a rate increase this year could still be warranted if inflation remains above the Fed’s 2% target.

Gold held above $4,500 an ounce on Thursday after rising more than 1% in the previous session, supported by growing optimism that an imminent peace agreement between the US and Iran could ease inflationary pressures and reduce concerns over interest rate hikes. President Donald Trump said the US was in the final stages of negotiations with Iran, fueling expectations that the strategically important Strait of Hormuz may soon reopen. The prospect of restored shipping flows triggered a sharp decline in oil prices, helping temper inflation fears and lowering expectations that central banks will need to tighten monetary policy. At the same time, minutes from the Federal Reserve’s latest policy meeting showed that most officials believe a rate increase this year could still be warranted if inflation remains above the Fed’s 2% target. Investors remain divided on whether the central bank will raise rates by December or leave borrowing costs unchanged through year-end.

Gold rose to above $4,530 per ounce on Wednesday, halting the drop that bottomed at a two-month low of $4,490 last session, and tracking the respite for Treasuries as signs of incoming energy supply from the Middle East tamed expectations of higher inflation. President Trump stated the US was close to an agreement to end the conflict with Iran, while three supertankers exited the Persian Gulf with cargoes to Asia. The developments supported the possibility that inflation could rise less than feared, dimming the risks of a hawkish Federal Reserve. Evidence of high inflation had led multiple policymakers to dissent against the easing bias in the Fed's last rate hold. On top of that, fresh minutes from the meeting indicated that a majority of members noted it may be appropriate to raise interest rates this year if inflation remains above the 2% threshold. Markets are split on whether the central bank may deliver a rate hike by December or whether rates will stay put.