Gold climbs 1% as oil drops on US-Iran interim peace deal

Gold climbed 1% on Thursday, recouping some losses from the previous session after the Federal Reserve's hawkish signals, as a drop in oil prices following a U.S.-Iran interim agreement dampened inflation expectations and provided ​support.

Spot gold was up 1% at $4,298.48 per ounce, as of 0616 GMT. Bullion declined ​1.7% on Wednesday after the U.S. Fed pointed to a potential rate hike ⁠later this year. U.S. gold futures for August delivery fell 1.4% to $4,318.10.

"It's a bit of ​short position unwinding (in gold) given yesterday's steep fall and the reason for the short unwinding ​is also due to the positive news coming out from the Middle East, which has caused oil prices to fall," said Kelvin Wong, a senior market analyst at OANDA.

Oil prices fell after the United States ​and Iran released the text of their interim agreement on Wednesday. The 14-point agreement extends the ​ceasefire announced in April by another 60 days to allow the two sides to negotiate a final ‌truce.

Elevated oil ⁠prices stoke inflation concerns and raise expectations of higher interest rates. Gold tends to lose appeal when rates are high, as it does not yield interest.

"I expect gold prices to remain muted on the upside, given the fact that market participants now have repriced a ​higher possibility of the ​Fed to kind ⁠of kickstart an interest rate-hike cycle," Wong said.

Nine of the U.S. central bank's 19 policymakers now believe they will need to raise the ​policy rate this year, according to projections published on Wednesday after ​the Fed ⁠announced its decision to leave the policy rate in its current 3.50%-3.75% range in Kevin Warsh's debut policy meeting as Chair.

Traders now see an 85% chance of a U.S. rate hike in ⁠December, jumping ​from 61% prior to the Fed decision, according to ​the CME FedWatch Tool. 

Spot silver rose 1% to $68.69 per ounce, platinum gained 0.9% to $1,752.45, and palladium was up 1.3% ​at $1,329.64.