Gold Surges to Seven-Week High on Strait of Hormuz Hopes

Gold prices rose to their highest level in seven weeks on Thursday, driven by hopes for a diplomatic breakthrough in the Middle East and a decline in oil prices. Spot gold was up 1% at $4,285.84 per ounce, with U.S. gold futures rising 0.9% to $4,345.80.

The rally came as Iran and Oman proposed a deal that would give Tehran control over ships entering the Gulf through the Strait of Hormuz, reducing the need for central banks to raise interest rates. This in turn is providing a clear tailwind for gold, according to IG market analyst Tony Sycamore, who noted that a sustained break above the 200-day moving average could pave the way for a stronger recovery toward the $5,000 mark.

Oil prices slipped on Thursday, with spot gold having declined 19% since the onset of the U.S.-Iran conflict in February. The decline was due to fears of energy-driven inflation prompting higher interest rates, but growing optimism has seen market expectations for a September U.S. rate hike ease to 55% from 67% two days earlier.

The weaker U.S. currency also made dollar-priced commodities cheaper for other currency holders, with the U.S. dollar index under pressure. Investors are awaiting the July U.S. nonfarm payrolls report scheduled for release on Friday, which could add further support to gold if it shows a soft reading.