Gold Rallies on US-Iran Deal Hopes and Softer Fed Outlook

Gold prices have recovered in recent days due to hopes of an interim deal between the US and Iran, which would reopen the Strait of Hormuz and ease inflation concerns. This development has prompted traders to reassess their bets on further Federal Reserve interest-rate increases, with some now fully pricing in only one rate hike by year-end. As a result, gold has gained value as it generates no yield and is less affected by monetary tightening.

Ryan McKay, senior commodity strategist at TD Securities, believes that the hopes for a US-Iran deal, along with fading concerns about broader economic risks, have lifted precious metals such as gold and silver. Additionally, the recent sentiment shift in Asia, where Asian gold ETF inflows are corroborating a positive trend, has also contributed to the rise of gold.

The conflict between the US and Iran had previously sent energy prices soaring, stoked inflationary pressures, and raised the likelihood that interest rates would stay higher for longer. However, with the recent developments in the Strait of Hormuz, Fed officials seem to be keeping an open mind about policy direction, as expressed by Philadelphia Fed President Anna Paulson.