Gold price notches two-week high on optimism over US-Iran deal

Gold extended gains to set a two-week high on Thursday, as optimism over a US-Iran peace deal continues to ease concerns over inflation and a prolonged period of high interest rates.

Spot gold rose 1.4% to over $4,750 an ounce during the early trading hours, following up on a 3% rise from the previous session. US gold futures saw similar movement, trading at about $4,770 an ounce in New York.

Bullion’s rebound came after reports that Iran is reviewing a deal proposed by the US government to end the war in the Middle East.

The 10-week-long conflict has so far choked off vital energy supplies flowing through the Strait of Hormuz, raising alarm bells on global inflation. This, in turn, forced central banks to suspend their monetary easing cycles, adding pressure on zero-yield assets like gold, which has fallen 10% during the war.

The US proposal is seen by market participants as a step in the right direction in ending the Middle East conflict, as most commodities saw large gains following the initial report on Wednesday, while both the S&P 500 and Nasdaq notched record highs.

Handbrake off?

A potential peace deal could also lift gold to all-time highs, according to some market watchers. Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, told CNBC earlier that he expects the secular bull market to resume and send precious metals to “new all-time highs in the not too distant future, potentially this year.”

The bank previously said it sees prices reasonably reaching as high as $6,000 an ounce.

“A peace deal would suggest those tailwinds ease off, and we are seeing that just now. It’s as if the handbrake has been released from gold and silver,” Ross Norman, CEO of precious metals website Metals Daily, also said in a CNBC interview.

Meanwhile, some analysts erred on the side of caution due to the volatile nature of the current market. “We caution these headlines remain extremely fragile to reversal as US and Iranian demands seemingly remain unchanged compared to prior proposals,” TD Securities strategists including Ryan McKay said in a note to Bloomberg.

In the near term, attention will be placed on upcoming US data releases, which could provide further indication on the Federal Reserve’s policy path. The presidents of both the Chicago and St. Louis Feds have warned that inflation remains above the targeted 2%, signalling that an interest rate cut may have to wait.

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