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

[SINGAPORE] Gold edged higher as a renewed push for a diplomatic resolution to the Iran war eased inflation concerns, despite continued tensions around the Strait of Hormuz.

Bullion advanced beyond US$4,810 an ounce, having lost 1.1 per cent in the previous session. The US and Iran are considering a two-week ceasefire extension to allow more time to negotiate an end to the conflict that’s disrupted global markets, according to a source familiar with the matter. But the movement of vessels through Hormuz remains choked, with the US blockading Iranian ships and Teheran keeping the critical waterway closed to most other traffic.

The two sides have an “in principle agreement” to pursue further diplomacy after an inconclusive initial round of talks in Pakistan at the weekend, the Associated Press reported. US President Donald Trump played down the prospect of renewed fighting on Tuesday, telling Fox Business that the near seven-week war is “close to over”.

Oil was steady on Thursday, while US stocks ended the previous day at record highs and a gauge of the US dollar edged lower. Softer crude prices in recent days have eased concerns about inflation which had made central banks more likely to hold interest rates steady for longer, or even hike them.

The swap market is still betting that the US Federal Reserve will hold rates steady this year, a view supported by comments from Fed Bank of St Louis President Alberto Musalem and Fed Bank of Cleveland President Beth Hammack, who said that she foresees rates “on hold for a good while.” Higher borrowing costs are a headwind for non-yielding bullion.

“Given the fragile ceasefire and switch to focus on real yields, gold is not yet out of the woods, and liquidity needs could continue to pressure prices further,” Suki Cooper, global head of commodities research at Standard Chartered, wrote in a note. With the competing risks of inflation and slower growth, “the policy response will be key”, she said, as gold “transitions away from moving in-step with risk assets”.

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Gold holds gain as renewed push for US-Iran talks eases risks

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Gold has fallen about 9 per cent since the start of the war, with a liquidity squeeze in the early weeks of fighting leading investors to offload holdings and cover losses elsewhere. In a sign that buyers are coming back to the market, bullion-backed exchange-traded funds have added around 25 tonnes so far this month, after cutting around 94 tonnes in March, according to a Bloomberg calculation.

Spot gold rose 0.5 per cent to US$4,812.95 an ounce as at 7.15 am in Singapore. Silver climbed 0.6 per cent to US$79.39. Platinum and palladium were little changed, while the Bloomberg Dollar Spot Index was flat after ending the previous session down 0.1 per cent. BLOOMBERG