Gold jumps as U.S.-Iran peace deal eases inflation fears, dents dollar

Investing.com – Gold prices jumped on Monday after oil prices fell and inflation worries eased following the announcement of a preliminary peace deal between the United States and Iran.

A memorandum of understanding is due to be signed in Switzerland on Friday, according to Pakistan, which has served as a frequent mediator during the conflict.

Neither the U.S. nor Iran has offered specific details, while Tehran has indicated that the deal will not be implemented until it is signed.

But, crucially, U.S. President Donald Trump has said the agreement will unblock the Strait of Hormuz, a vital waterway off Iran’s southern coast through which roughly a fifth of the world’s oil flowed prior to the outbreak of the war in late February. Brent crude futures, the global oil benchmark which recently topped $110 a barrel during the fighting, last sat just above $80 a barrel.

Against this backdrop, spot gold prices climbed 2.8% to $4,338.14 an ounce as of 07:26 ET (11:26 GMT), touching their highest level since June 9 and extending a streak of increases to a third consecutive session. Gold futures also bounced by 2.8% to $4,359.09 an ounce.

Partly bolstering bullion was a weakening in the U.S. dollar to a 10-day low against its major peers. The greenback has been viewed as a relative safe-haven asset during the war, leaving it vulnerable to a boost in risk sentiment following a peace deal.

A softer dollar can burnish gold by making it less expensive for overseas buyers.

At the same time, an extended drop in oil prices could help ease some fears of a hawkish policy pivot by global central banks due to a prolonged energy-induced inflation spike. Non-yielding gold tends to underperform in elevated rate environments.

Traders now see a 49% probability of a Federal Reserve interest rate increase by December, down from 69% a week earlier, according to the CME FedWatch Tool. The Fed is tipped to keep interest rates steady at the conclusion of its latest two-day policy meeting on Wednesday.