Gold Jumps on Hormuz Deal Hopes, US Rate Hike Odds Fall

Gold prices surged to a four-week high on August 5 as markets reacted positively to the prospect of an interim deal to reopen the Strait of Hormuz. The news eased concerns about inflation and reduced the odds of the Federal Reserve raising interest rates, sending bullion up by as much as 2.5% to $4,179.53 an ounce.

US President Donald Trump said talks with Iran were 'moving along very nicely', while Axios reported that Washington, Tehran, and Oman were close to a deal, with the US targeting an announcement later on Wednesday. The Federal Reserve's decision to keep policy unchanged for the fifth straight time last week was also seen as supportive of precious metals.

Philadelphia Fed president Anna Paulson said she was 'keeping an open mind' on future policy direction due to conflicting signs on whether it's restrictive enough. Meanwhile, the Fed's Bank of Kansas City president Jeff Schmid suggested higher rates were needed to achieve price-stability goals, cautioning against assuming inflation pressures from supply shocks would be fleeting.

Chinese institutional investors have been a source of support for bullion in recent weeks, helping to arrest the war-led decline and keep prices above the key $4,000-an-ounce threshold. Gold-backed exchange-traded funds in China saw 14 straight days of inflows up to Monday, the longest streak since March.