Gold rises 2% after US and Iran reach a peace deal

Gold rose 2% on Monday after U.S. and Iran officials said they had ‌reached a preliminary deal to end their conflict, pushing oil prices lower and easing concerns about inflation and higher interest rates.

Spot gold was up 2% at $4,304.11 per ounce, as of 0122 GMT, hitting its highest ​level since June 9. U.S. gold futures for August delivery rose 2% to $4,325.20.

U.S. and ​Iranian officials said on Sunday they had agreed on a framework to end their ⁠war, halt the U.S. blockade of Iran and reopen the Strait of Hormuz.

The pact ​will be officially signed on Friday in Switzerland, Pakistani Prime Minister Shehbaz Sharif said in a ​post on X.

The U.S. dollar fell to a 10-day low, making greenback-priced bullion cheaper for other currency holders, while oil prices slipped more than 4%.

"Lower oil prices and a softer dollar, stemming from reduced geopolitical risk ​and the anticipated reopening of the Strait of Hormuz, are helping to calm inflation expectations," ​said Tim Waterer, chief market analyst at KCM Trade.

"This combination is providing the precious metal with its best ‌tailwind ⁠in recent weeks, though sustainability will depend on how durable the peace agreement proves to be."

Gold prices have fallen about 20% since the start of the U.S.-Israeli war against Iran in late February. The effective closure of the Strait of Hormuz has led to a sharp increase ​in global oil prices, ​stoking inflation concerns and ⁠raising expectations of interest rates staying higher for longer.

Though traditionally seen as an inflation hedge, gold loses appeal in a high interest-rate environment ​as the opportunity cost of holding the non-yielding asset increases.

Markets have scaled ​back expectations ⁠for a U.S. interest rate hike in December to 47% after the peace deal, down from 69% last week, according to the CME FedWatch tool. 

"Currency debasement concerns, fiscal risks and ongoing geopolitical fragmentation ⁠continue ​to underpin long-term demand (for gold). A moderation in energy-led ​inflation could help these themes regain traction," OCBC said in a note.

Spot silver rose 3.1% to $70.07 per ounce, platinum gained ​3.1% to $1,771.27 and palladium climbed 3.3% to $1,325.76.