Gold Surges 2% as US-Iran Ceasefire Eases Inflation Fears

Gold prices were above $4,250 per ounce on Thursday, holding this week's rally at a seven week high as lower energy prices reduced certainty that the Federal Reserve was due to raise rates this year. US officials signaled they are chasing a ceasefire with Iran and an agreement to protect trade through the Persian Gulf, driving fuel prices to plunge since the start of August, and softening concerns that energy inflation would lift underlying consumer prices. Treasury yields consequently eased, lifting bullion prices as markets faced lower opportunity costs to hold assets that bear no interest. Elsewhere, data from clearing institutions indicated that institutional investors in China continued to increase long position on gold-backed assets for safety from volatility in tech stocks and recent signs of strength in the physical market, recently underpinned by central banks.

Gold climbed toward $4,300 an ounce on Thursday, rising for the fourth straight session and rallying nearly 6% so far this week as a deal to partially reopen the Strait of Hormuz pushed oil prices lower, easing concerns over inflation and the outlook for interest rates. Iran and Oman reached an agreement on a shipping corridor through the strait, boosting expectations of increased energy flows from the Middle East. Markets scaled back expectations for Federal Reserve interest rate hikes this year, now pricing in just one increase by year-end, compared with two as recently as last week. Meanwhile, ADP data showed the US economy added only 44,000 private-sector jobs in July, the weakest reading since January and well below forecasts for 70,000. Elsewhere, Fed Governor Lisa Cook reiterated on Wednesday that she remains prepared to raise rates if inflation fails to cool, warning that the central bank may not have the luxury of waiting before bringing inflation back to its 2% target.

Gold extended its gains to around $4,200 an ounce on Wednesday, reaching its highest level since June 18, as easing geopolitical tensions and softer US labor market data reinforced expectations of a less aggressive Federal Reserve. President Donald Trump said the US and Iran held "very good discussions" on Tuesday, raising hopes of a deal to end their five-month conflict. The prospect of restored Middle Eastern energy supplies has pushed oil prices down about 10% this week, easing inflation concerns and reducing expectations for further Fed tightening. Meanwhile, the ADP Employment Report showed the US economy added just 44,000 private-sector jobs in July, the weakest reading since January and well below forecasts of 70,000. Traders now see a 57% chance of a September Fed rate hike, down from 67% a day earlier. Still, Kansas City Fed President Jeff Schmid said some additional policy tightening may be needed to bring inflation back to the central bank's 2% target.