Gold Prices Surge Amid Weakening Inflation Fears Following Iran Deal Uncertainty

Global Markets React to US-Iran Peace Negotiations

Gold prices surged on Sunday as signs emerged that the US and Iran are nearing a deal to reopen the Strait of Hormuz, tempering inflation concerns. Bullion rose to around $4,575 an ounce, erasing a moderate loss from the previous week.

The negotiations on the precise language of the deal are ongoing, with US officials indicating that it may take several days for both sides to secure final approval. Meanwhile, President Donald Trump has expressed caution, stating that he will not "rush" into an agreement.

The reaction of gold to the headlines was relatively muted, according to Justin Lin, analyst at Global X ETFs in Sydney. "Markets have seen announcements from Trump fizzle into nothing multiple times now and must see more concrete evidence of cooperation from Iran before confirming moves higher and lowering inflation expectations."

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Despite the recent increase, gold prices remain down about 13% since the conflict began in late February. The Iran war has sent energy prices soaring, leading traders to ramp up rate-hike bets. The money market is currently pricing in a near-certainty that the Federal Reserve will start raising rates by December, with the new Fed chair Kevin Warsh taking the helm.

Spot gold was up 1.5% at $4,575.30 an ounce at 8:11 a.m. in Singapore, while silver rose 4% to $78.53. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.2%.