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

Gold climbed above $4,500 per ounce on Thursday as hopes for a Middle East resolution weakened the dollar and oil prices, easing concerns over inflation and interest rate hikes. Israel and Lebanon’s agreement to implement a ceasefire and end hostilities fueled optimism for a broader deal to de-escalate the US-Israeli conflict with Iran. Additionally, the Republican-led US House of Representatives passed a resolution to block President Donald Trump from continuing military action against Iran. Still, uncertainty about the war’s end lingers, and regional tensions remain high. Since the conflict began in late February, gold has lost about 16% as surging oil prices stoked inflation fears and raised the likelihood of higher interest rates. Meanwhile, consultancy Metals Focus forecasts gold will resume its bull run in the second half of the year but expects demand to fall by 2% in 2026, driven by double-digit declines in jewelry and central bank purchases.

Gold traded around $4,450 an ounce on Thursday and was down almost 2% for the week, weighed down by growing expectations that central banks may need to raise interest rates to counter an energy-driven inflation shock stemming from the Middle East conflict. Hopes for a peace agreement also faded after the US and Iran exchanged strikes, with Bahrain and Kuwait caught in the crossfire during the most serious escalation since the ceasefire took effect in early April. The prolonged conflict and the near-shutdown of the crucial Strait of Hormuz have kept energy prices elevated, fueling inflation concerns and reinforcing expectations of tighter monetary policy. In the US, Cleveland Fed President Beth Hammack said the Fed could be forced to raise rates soon if inflation pressures continue to intensify. Investors are now focused on Friday’s nonfarm payrolls report for further clues on the Fed’s policy outlook.

Gold prices fell below $4,500 per ounce on Wednesday, edging closer to the March lows touched last week, as expectations grew that central banks may need to adopt a more hawkish stance and keep interest rates higher for longer. Sentiment was also weighed by continued uncertainty over a US-Iran agreement to end the conflict. At the same time, oil prices extended their gains, further stoking concerns about inflationary pressures. In the US, recent labor market data point to an acceleration in employment growth, consistent with earlier ADP and JOLTS reports. As a result, markets now ECB is expected to raise borrowing costs next week, with traders also pricing in another 25-basis-point hike in September. Although gold is typically viewed as a hedge against inflation, it tends to lose appeal as a non-yielding asset when interest rates are high.