(Bloomberg) — Gold moved in a narrow range, as traders monitored diplomatic efforts to cool US-Iran tensions, potentially pushing energy prices lower and easing pressure on the US Federal Reserve to raise interest rates.
Bullion traded near $4,060 an ounce, after ending little changed on Monday. After calling off an attack, President Donald Trump said his latest offer of talks was Tehran’s “last chance,” and that he expects a full reopening of the Strait of Hormuz. Tehran denied it was talking with the US, but said discussions with Oman to get more ships moving through Hormuz were making progress.
Separately, US and Japanese officials signaled they’re determined to keep defending the yen after their first joint intervention in 15 years. Japan is the largest foreign holder of US Treasuries, and any sales to fund its efforts to support the currency would risk pressuring US bonds at a time when inflation concerns and the Iran war are pushing up yields.
Gold has declined by more than a fifth since the US-Iran war began in late February, with high energy prices stoking inflationary pressures and raising the likelihood that interest rates will stay higher for longer — a headwind for precious metals. Still, Fed officials opted to keep policy unchanged when they met last week, although there were three dissents in favor of a hike.
Fed Bank of New York President John Williams said that interest rates remained well positioned as inflation should ease during the second half, according to an interview with Reuters published on Monday. Still, if inflation did not behave as expected, then the central bank would need to act, Williams added.
While waiting for fresh signals from the Middle East, banks have turned attention to the near-term outlook for the gold market. “Re-accelerating central-bank gold demand, led by China, should help gold prices rebound despite likely temporary downside price pressure from energy and rates markets,” Goldman Sachs Group Inc. analysts including Daan Struyven said in the note.
Citi Research analysts said gold could stagnate or even decline over the next month before rallying to $4,500 an ounce in the fourth quarter. “Our base case is for the US-Iran conflict to end and Hormuz flows normalizing and, with this, lower real interest rates and a weaker dollar and stronger investor interest in gold returning,” the analysts including Kenny Hu said in a note.
Spot gold added 0.1% to $4,057.16 an ounce at 10:10 a.m. in Singapore. Silver was up 1% at $58.58 an ounce. Platinum and palladium also edged higher. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed after ending the previous session marginally lower.
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