Gold Surges as Hormuz Deal Hopes Lift Diplomatic Optimism

Gold prices have risen to their highest level in seven weeks as market participants assess the chances of the Strait of Hormuz reopening. Spot gold was up 0.2% at $4,254.98 per ounce by 0636 GMT, after earlier hitting its highest level since June 18.

The Strait of Hormuz is a crucial waterway that connects the Persian Gulf to the Gulf of Oman and has been a point of contention between Iran and the US. A proposed deal between Iran and Oman could give Tehran control over ships entering the Gulf through the Strait, reducing pressure on oil prices and interest rates.

IG market analyst Tony Sycamore said that 'the sharp rally came on building optimism that a diplomatic breakthrough in the Middle East is close to being finalised.' He added that a sustained break above the 200-day moving average could pave the way for a stronger recovery toward the $5,000 mark.

Market expectations for a September US rate hike have eased to 55% from 67% two days earlier. This reduced expectation of higher interest rates has been a tailwind for gold, which tends to perform better in low-interest-rate environments.