Gold price nears month high as Iran reopens Strait of Hormuz

Gold jumped to its highest in nearly a month after Iran reopened the Strait of Hormuz for commercial traffic, alleviating investor concerns of a prolonged war and further pressure on global inflation.

Spot gold rose as much as 1.7% to about $4,887 an ounce, its highest since March 17, extending its gains from the previous session. Silver also surged over 5% to reach $83 an ounce, a five-week high.

With this move, bullion has now recovered more than half of its losses since the Middle East war started over six weeks ago. The closure of the Strait of Hormuz, which accounts for a fifth of the world’s oil supply flow, especially had a profound impact on global markets by triggering a surge in energy prices, leading to inflation worries worldwide.

As a non-yielding asset, gold benefits from a low-interest environment, a scenario that is less likely to happen should the inflationary pressures remain. Despite being also a safe-haven asset, the metal fell nearly 10% since the onset of the war, amid expectations of elevated interest rates as well as a stronger US dollar.

“Reopening the Strait was a key event, and with oil prices under pressure, ​it is expected to ease inflation concerns and revive expectations of interest rate cuts – ​all good news for gold,” Peter Grant, vice president and senior metals strategist at Zaner Metals, told Reuters.

In the near term, Grant predicted that gold prices ⁠could get back to the $5,000 level, in line with analyst expectations of a rebound.

“Gold has been trading inversely with oil and the dollar while positively correlating with risk assets since the start of the war. So any peace-related headline will inject upside momentum,” Nicky Shiels, head of metals strategy at MKS PAMP SA, said in a note to Bloomberg.

Longer term, the outlook on gold remains bullish, with Goldman Sachs recently reiterating its year-end target of $5,400 an ounce. Year to date, the precious metal has risen by 10% despite the war-driven downturn.