Spot gold was up 1.1% to $4,740.42 per ounce after hitting a two-week peak earlier in the session.
Spot gold U.S. gold futures rose 1.2% to $4,749.20. “If the ceasefire holds, and we can put this war behind us, and get back to business with the Strait being open, I can see gold push to $5,000/oz,” Bob Haberkorn, senior market strategist at RJO Futures, said.
“The market is just watching the situation in the Middle East, as well as the direction the U.S. Federal Reserve is looking at.” U.S. President Donald Trump predicted a swift end to the war with Iran as Tehran considered a U.S. peace proposal that sources said would formally end the conflict while leaving unresolved U.S. demands that Iran suspend its nuclear program and reopen the Strait of Hormuz.
Oil prices extended losses, with Brent crude benchmark trading below $100 a barrel.
Rising energy costs tend to drive inflation. In such a scenario, policymakers may be less inclined to cut interest rates to contain price pressures. Despite its role as an inflation hedge, gold becomes less attractive in a higher-rate environment because it offers no yield.
There is a path to above $5,200/oz for gold once the conflict and oil-driven inflation pressures fade, TD Securities said in a note.
“A later pivot toward the Fed’s maximum employment mandate, lower yields and a softer U.S. dollar, plus renewed investor and central-bank demand, could reignite the bull trend,” it added.
Markets await the monthly U.S. employment report on Friday to assess how the Fed will move forward with monetary policy this year. Elsewhere, China’s central bank loaded up on gold for an 18th straight month in April, data showed. Among other metals, spot silver rose 5% to $81.19, its highest level since April 17.
Platinum added 1.2% at $2,085.75, and palladium firmed 0.1% to $1,539.01.