Gold price climbs as pause in Mideast fighting curbs inflation risk

Gold rose, after a pause in fighting between the US and Iran eased oil supply risks and inflationary concerns that have threatened tighter monetary policy.

Bullion advanced as much as 1.6% to top $4,100 an ounce before paring gains in early US trading. Washington and Tehran held off attacking one another for a third straight night, following an almost two-week run of US strikes on Iran. The lull came as Iranian and Omani officials met over the weekend in a fresh attempt to resolve shipping through Hormuz. Brent crude tumbled as much as 9.5%.

After last month’s interim ceasefire, renewed fighting in the Middle East has stoked inflationary pressures and increased the likelihood that the Federal Reserve may raise interest rates, creating headwinds for non-yielding bullion. Fed watchers expect a rate decision this week to be contentious, with the recent rise in energy costs clashing with a tamer-than-expected reading on June consumer prices.

Gold has largely hovered around $4,000 an ounce since late June, with a wave of dip-buying keeping the metal above the psychological threshold that some traders see as a key support. Bullion is down by more than a fifth since the US and Israel launched strikes on Iran in late February, helping to end a multiyear bull run that had carried the metal to a record near $5,600 the month before.

While the current pause in fighting is positive for gold, the markets needs a “meaningful resolution between the US and Iran before bidding gold beyond this range of $4,000 to $4,200,” said Justin Lin, an analyst at Global X ETFs. “Yields and inflation expectations will remain lofty as long as the conflict sustains, which is the main thing holding back gold right now.”

Spot gold climbed 0.5% to $4,071.16 an ounce by 10:28 a.m. in New York. Silver jumped 0.4% to $58.42 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index was little-changed.

(By Yihui Xie)