Gold Surges Past $4,160 as Hormuz Strait Reopening Hopes Rise

Gold prices surged past $4,160 per ounce on Wednesday, reaching their highest level in three consecutive trading days, as spot gold gained over 2% during Asian trading. Silver also rallied, breaking above the $61 mark with a similar gain of more than 2%. The sharp increase in precious metals was driven by Qatar's mediation efforts to temporarily reopen the Strait of Hormuz, which has raised hopes for a deal that could alleviate inflationary pressures and reduce the need for further interest rate hikes from the U.S. Federal Reserve.

The market expects such a move would ease concerns over energy supply disruptions and lower international oil prices, which have been volatile in recent sessions. According to market sources, Qatar has drafted a proposal to help restore commercial shipping through the Strait of Hormuz. U.S. news outlet Axios reported that Washington, Tehran, and Oman are nearing a temporary agreement.

The development has led to a shift in market expectations for the Fed's monetary tightening path. Interest rate futures markets now fully price in only one more rate hike from the Fed before year-end, down from two hikes anticipated just last week. Nicky Shiels, head of research and metals strategy at MKS Pamp Inc., said: 'Gold is the liquidity sponge in the macro system; it is one of the first assets to be hit, and vice versa, when the market sniffs out any sign of rate tightening risk.'

Chinese institutional investors have turned increasingly active in buying gold recently, supporting prices from breaching key support levels. Chinese gold ETFs recorded net inflows for a 14th consecutive trading day as of Monday, according to Bloomberg calculations.