Gold holds hefty gain as US-Iran truce hopes ease inflation fear

[SINGAPORE] Gold steadied after its biggest daily advance since late March as traders assessed the optimism of a US-Iran deal to end the war that has sent oil prices plunging and eased inflation concerns.

Bullion traded around US$4,690 an ounce, after jumping 3 per cent on Wednesday (May 6). Falling energy prices weighed on bond yields, while the US dollar fell to pre-war levels, tailwinds for gold that’s priced in the US currency and does not offer interest.

Iran is evaluating a fresh proposal from the US to end the near 10-week conflict, according to a source familiar with the matter, as China added its voice to global pressure to wrap up the war.

US President Donald Trump has indicated on multiple occasions throughout the conflict that a deal is near, though none has materialised. He said on social media on Wednesday that the US will end its military campaign and lift its blockade of the Strait of Hormuz “assuming Iran agrees to give what has been agreed to, which is, perhaps, a big assumption”.

“Headlines of a potential peace deal have the precious metals and base metal complex on the front foot this morning,” TD Securities strategists, including Ryan McKay, said. “We caution these headlines remain extremely fragile to reversal as US and Iranian demands seemingly remain unchanged compared to prior proposals.”

While markets priced in hope, Federal Reserve Bank of Chicago president Austan Goolsbee and president of St Louis Fed Alberto Musalem struck a note of caution, highlighting inflation is running above the target of 2 per cent.

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Gold has fallen about 11 per cent since the conflict erupted in late February, as the closure of Hormuz and resulting energy price shock raised concerns about rising inflation and that rates will stay higher for longer.

Spot gold was steady at US$4,690.49 an ounce at 8.50 am in Singapore, while silver was little changed at US$77.27 after jumping 6.2 per cent on Wednesday. Platinum and palladium rose. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after falling 0.6 per cent in the previous session. BLOOMBERG