Gold prices surged by more than 2% on Wednesday, with futures moving above the $4,200-an-ounce mark as optimism surrounding a potential agreement to reopen the Strait of Hormuz reduced inflation concerns and encouraged investors to lower expectations for additional Federal Reserve interest rate increases.
At 02:07 ET (06:07 GMT), spot gold (XAU/USD) advanced 2.1% to $4,162.79 per ounce, while Gold Futures gained 1.7% to $4,222.92. Silver (XAG/USD) rose 3.2% to $61.45 per ounce and platinum (XPT/USD) climbed 1.8% to $1,768.95.
Diplomatic progress supports bullion
Gold extended its rally for a third consecutive session as signs of progress toward reopening the Strait of Hormuz eased fears that disruptions to global energy supplies would continue to fuel inflation.
Qatar confirmed that mediators had prepared a draft proposal to restore commercial shipping through the strategic waterway. Meanwhile, Axios reported that the United States, Iran and Oman were approaching an agreement, with US officials hoping to announce it as early as Wednesday.
US Treasury Secretary Scott Bessent also said an agreement to reopen the Strait could be reached as soon as Tuesday or Wednesday, reinforcing expectations that energy markets may become more stable.
The possibility of lower oil prices prompted traders to further scale back forecasts for additional Federal Reserve tightening. Markets now fully expect only one US interest rate increase before the end of the year, compared with expectations for two hikes only a week ago.
The US Dollar Index also weakened, making gold priced in dollars more attractive for international buyers and providing further support for precious metals.
Fed outlook and Chinese demand remain in focus
Gold has fallen more than 20% since the outbreak of the US-Iran conflict in late February, as higher energy prices increased inflation expectations and strengthened the case for interest rates remaining elevated.
Although the Federal Reserve left rates unchanged for a fifth consecutive meeting last week, three policymakers voted in favour of raising borrowing costs.
Philadelphia Federal Reserve President Anna Paulson said she remains “open-minded” about the future policy path as officials continue to assess whether current monetary settings are sufficiently restrictive.
Kansas City Federal Reserve President Jeff Schmid also argued that interest rates may need to remain higher to restore price stability, cautioning against assuming inflationary pressures caused by supply disruptions would quickly disappear.
Meanwhile, demand from China has continued to underpin the gold market. Bloomberg data showed that Chinese gold-backed exchange-traded funds attracted inflows for a fourteenth consecutive trading session through Monday, marking the longest buying streak since March and signalling renewed institutional interest.
The sustained inflows have helped keep gold comfortably above the psychologically important $4,000-per-ounce level despite continuing uncertainty over the Federal Reserve’s policy outlook.