Gold prices rebounded as the market showed signs that the US and Iran are getting closer to an agreement that could help reopen the Strait of Hormuz, thereby easing concerns about global inflation.
In the first trading session of the week, gold prices at one point increased to around the threshold of 4,560 USD/ounce, almost completely erasing the decrease of the previous week.
According to US officials, the two sides are still continuing negotiations on the final terms of the agreement and may need a few more days to complete the approval process.
US President Donald Trump also said that he would not "hurry" to reach an agreement with Iran.
Earlier, US Secretary of State Marco Rubio revealed that "good news" related to the Hormuz Strait may soon appear in the next few hours, as Washington and Tehran continue to promote peace talks.
According to analysts, the prospect of reopening the Strait of Hormuz is helping to cool down inflationary pressure due to the sharp increase in energy prices in recent times.
However, Mr. Justin Lin - an analyst at Global X ETFs - said that gold's reaction is still quite cautious.
He said that the market has witnessed many times that statements from Mr. Trump have not yielded real results. Therefore, investors still need more clear signals from Iran before truly believing in the ability to cool down tensions and reduce inflation expectations.
Despite recovering in the latest session, gold prices are still down about 13% since the Middle East conflict broke out at the end of February.
In the past time, the Iran war has caused energy prices to skyrocket, leading to expectations that the US Federal Reserve (Fed) will maintain a tougher monetary policy.
The market is now almost certain that the Fed will start raising interest rates again from December this year. High interest rates are often disadvantageous for gold because this precious metal does not generate profits.
Investors are also closely monitoring the first views of Mr. Kevin Warsh after officially taking over as Fed Chairman to assess the prospects of US monetary and economic policy in the near future.
As of 9:18 am in Singapore, spot gold prices rose 1.5% to 4,560.87 USD/ounce. Silver prices rose sharply by 4% to 78.53 USD/ounce, while platinum and palladium also simultaneously went up. The Bloomberg Dollar Spot Index fell about 0.2% in the session.
