Gold Stabilizes Amid Hormuz Deal Hopes

Gold prices have remained stable as hopes of an interim deal to reopen the Strait of Hormuz ease inflation concerns and reduce the odds of a US Federal Reserve rate hike. The prospect of a deal normalizing commercial shipping via Hormuz has led to optimism that oil production will resume, causing a decline in energy prices.

Oil fell for a third consecutive day on the positive news. Markets are now fully pricing in one interest rate hike by year-end, down from two as recently as last week. This reduced likelihood of monetary tightening is generally beneficial for gold, which generates no yield.

The Fed kept rates unchanged for the fifth straight time when they met last week, with three officials dissenting and favoring a hike. Philadelphia Fed President Anna Paulson noted that she's keeping an open mind on future policy direction due to conflicting signs on whether it's restrictive enough.

Gold has fallen by more than a fifth since the US-Iran war began in late February. However, support for bullion has emerged from Chinese institutional investors who have helped arrest the decline and keep prices above the $4,000-an-ounce threshold.