Gold heads for fourth weekly gain on optimism for US-Iran truce

[SINGAPORE] Gold headed for a fourth weekly gain after US President Donald Trump expressed optimism that the US and Iran could agree a permanent ceasefire to end the war that’s upended markets and heightened inflation fears.

Bullion was steady near US$4,795 an ounce in early trading, having added nearly 1 per cent this week. Trump said on Thursday (Apr 16) that Iran had agreed to terms it has long resisted, including the reopening of the Strait of Hormuz, although some European and Gulf Arab leaders predicted that a US-Iran peace deal could take about six months to be brokered.

Trump also announced that Israel and Lebanon had agreed to a 10-day ceasefire, a move that was later confirmed by Israeli Prime Minister Benjamin Netanyahu. But control over Hormuz, the key waterway that links the Persian Gulf to global markets, remains contentious, with a US naval blockade still in place and Iran pressing ahead with plans to charge ships for transit even after the war is over.

Oil fell on Friday, a day after US stocks pushed to another record high. A recent retreat in energy prices has relieved some of the inflationary pressure that has weighed on bullion since the war began seven weeks ago. Concern about rising consumer prices has led traders to bet that central banks will hold interest rates steady for longer or even hike them – a headwind for non-yielding bullion.

Federal Reserve Bank of New York president John Williams said on Thursday that high uncertainty should prevent policymakers from providing any strong guidance on the future path of rates, though his outlook still includes cuts in the longer term.

“The underlying backdrop has shifted in a more constructive direction,” Ole Hansen, head of commodity strategy at Saxo Bank, wrote in a note. “Lower real yields, a softer dollar, renewed rate-cut expectations and very light speculative positioning collectively point towards a market that is rebuilding rather than breaking down,” he said.

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Gold rises as push for US-Iran diplomacy eases inflation risk

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Though gold has clawed back losses in recent weeks, the metal has still lost about 9 per cent since the start of the conflict in late February, with a liquidity squeeze in the early days of fighting leading investors to offload holdings and cover losses elsewhere. Disruption to energy supplies is also likely to last beyond the war, keeping the inflation risk high, as strikes have damaged key oil and gas infrastructure in the Middle East.

Spot gold edged 0.1 per cent higher to US$4,793.75 an ounce at 6.40 am in Singapore. Silver climbed 0.4 per cent to US$78.75 an ounce. Platinum and palladium rose marginally. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed after ended the previous session 0.1 per cent higher. BLOOMBERG