Gold prices rebounded during Monday’s Asian trading session, reclaiming the US$4,550 level after posting losses of 0.8% last week as a weaker United States dollar index (DXY) supported renewed buying interest.
The precious metal climbed as investors reacted to reports suggesting the United States and Iran were moving closer toward a potential peace agreement that could lead to the reopening of the Strait of Hormuz.
By 3:15 pm AEST (5:15 am GMT), spot gold prices were trading 1.3% higher at $4,563.21 per ounce.
Over the weekend, several U.S. media outlets reported that Washington and Tehran were nearing a deal involving a 60-day ceasefire extension alongside an in-principle agreement to reopen the Strait of Hormuz.
United States President Donald Trump later cautioned that negotiations were still incomplete, saying the agreement “isn’t even fully negotiated yet”, as disputes remain over Iran’s nuclear program and control of the strategically important waterway.
Despite the unresolved issues, financial markets have largely maintained optimism that an agreement could be reached in the coming days, potentially restoring normal maritime traffic through the Strait of Hormuz.
The prospect of the Strait reopening has already weighed heavily on oil prices, with crude falling more than 5%, while also encouraging a broader risk-on tone across global markets.
The decline in the DXY also helped lift gold prices, as a weaker greenback typically makes bullion more attractive to holders of other currencies.
However, inflation concerns continue to build as investors assess the broader impact of elevated energy prices and geopolitical tensions on the global economy.
Markets have increasingly begun pricing in the possibility of another U.S. interest rate increase by the end of the year.
According to the CME Group FedWatch Tool, markets are currently pricing in a 40.1% probability of a 25 basis point interest rate hike by December, alongside a 12.5% chance of a larger 50 basis point increase.
Investors are also preparing for potentially volatile trading conditions during the session ahead, with U.S. stock and bond markets closed on Monday for the Memorial Day holiday.
Lower trading volumes and thinner liquidity conditions may increase the potential for exaggerated price swings across commodity and currency markets.
