(Bloomberg) — Gold held a decline as conflicting signals from the US and Iran cast doubt over a diplomatic resolution to the war, fanning concerns over inflation and prolonged trade disruptions.
Bullion was near $4,490 an ounce, having fallen more than 1% in the previous session. Against a backdrop of renewed clashes near the Strait of Hormuz, US President Donald Trump said talks with Iran were continuing “at a rapid pace,” countering earlier threats from Tehran to suspend diplomacy and close the key waterway completely.
Trump and Israeli Prime Minister Benjamin Netanhayu also offered differing accounts of a call about the fighting in Lebanon, underscoring the confusion around talks to end the conflict that’s triggered a global energy crisis and has now entered a fourth month.
The uncertainty roiled markets on Monday, with oil clocking its biggest gain in about a month while bond yields and the dollar climbed, making gold priced in the US currency more expensive. Brent crude held just under $95 a barrel on Tuesday, having fallen last week on optimism that a deal might be reached.
“Energy markets are likely to remain tight and supported at higher prices, even under a potential deal,” TD Securities analysts Ryan McKay and Bart Melek said in a note. “This suggests the macro headwinds that have weighed on the precious metals complex will remain in place.”
Gold fell sharply after the conflict began in late February and remains about 15% below its immediate pre-war level, though has traded in a narrow range for the last few weeks.
Any resumption of energy and trade traffic through Hormuz would ease concerns around global inflation, making it more likely that central banks will loosen monetary policy. Lower borrowing costs are a tailwind for gold, which doesn’t pay interest.
The Federal Reserve, however, may have less reason to cut rates to stimulate consumption after US manufacturing activity expanded in May at the fastest pace in four years – the fifth straight month of growth, according to data released on Monday.
The outlook for gold “remains contingent on developments in the Middle East,” Rhona O’Connell, head of market analysis for EMEA and Asia at StoneX Financial Ltd., said in a note. “Although some progress has been made, the key issues remain unresolved, meaning that prices are likely to remain range-bound, potentially with a downward bias on the back of interest-rate expectations.”
Spot gold edged up 0.1% to $4,489.20 an ounce as of 8:40 a.m. in Singapore. Silver gained 0.4% to $75.12 an ounce. Platinum and palladium also rose. The Bloomberg Dollar Spot Index was flat, having ended the previous session up 0.3%.
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