Gold price advances as Trump remarks calm inflation fears

Gold advanced on Tuesday after US President Donald Trump’s latest comments on the Middle East war drove down oil prices and eased inflationary concerns.

Spot gold gained as much as 1.8% to about $5,240 an ounce, while US gold futures rose even more at 2.7%. Silver, meanwhile, climbed 2% toward the $90-per-ounce level.

Bullion drifted lower during the Monday session as the war in Middle East entered its second week, but started to rebound after market close as Trump, in his latest speech, signalled an imminent end to the conflict.

“It’s going to be ended soon,” the US President said in a news conference Monday afternoon.

Oil prices, which have jumped over 30% since the Iran war started, tumbled after Trump’s remarks. This helped to ease investor concerns of high inflation that could prevent the US Federal Reserve from cutting interest rates, a move that would have benefited non-yielding assets like gold.

“For gold traders, falling but still elevated oil prices mean that inflation will be higher but won’t be so high as to prevent the US central bank from cutting rates this year,” said Bart Melek, global head of commodity strategy at TD Securities.

“Investors are gaining comfort that the debasement ​trade may be re-energizing ​as we move ⁠on,” Melek told Reuters on Tuesday.

Prior to Trump’s speech, investors were expecting the Fed to hold rates steady or even hike them to contain inflationary pressures from surging energy prices.

Such expectation has capped gold prices, which have dropped 3% over the past week. Data compiled by Bloomberg showed that the volume of gold held by exchange-traded funds also declined after the war broke out, and last week’s outflow of 30 tonnes marked its biggest selloff in over two years.

Even though risk appetite has returned with Trump’s comments, BMO Capital Markets noted that there is “still no clear off-ramp in sight,” as shipping through the Strait of Hormuz has not resumed, and “the energy complex remains substantially elevated versus prior to the conflict.”

While trading has been choppy and upward momentum has stalled after its crash from record highs in late January, the yellow metal has still gained around 20% this year.