Gold Continues Its Gains Amid Hopes for Talks to End Iran War

SadaNews - Gold extended its gains after reports indicated that the United States is seeking a diplomatic path to end the war in the Middle East, bringing an end to a nine-day series of losses for the precious metal.

Gold rose by up to 2.8% to return above the $4,600 per ounce level, adding to gains of 1.6% in the previous session.

U.S. President Donald Trump stated that Iran had offered a "gift" as a sign of goodwill in negotiations, indicating it relates to energy flows through the Strait of Hormuz.

China urged Iran to engage in talks with the United States, while Axios reported that Washington and regional mediators are seeking to hold high-level talks as soon as possible on Thursday.

Oil Declines and Stocks Rise

Oil prices decreased while U.S. stocks rose, and the U.S. dollar index fell by 0.3%. Since the war began over three weeks ago, gold has largely moved in parallel with stocks and inversely with crude oil.

Rising energy prices resulting from the conflict have increased inflation risks, prompting investors to bet that the Federal Reserve and other central banks will keep interest rates unchanged. This puts pressure on non-yielding precious metals.

In recent weeks, declines in global stocks and bonds have also forced investors to liquidate their positions in gold to provide liquidity, exacerbating losses for the metal.

Christopher Wong, a strategist at Oversea-Chinese Banking Corporation, stated that in the near term, "gold is likely to remain sensitive to expectations of the Fed's monetary policy trajectory, the dollar price, and geopolitical developments."

He added: "But the current recovery suggests that declines may find support, unless real yields rise significantly."

Nervous Markets and Additional Pressures

Markets remained tense as Iran tightened its grip on the Strait of Hormuz, and Israel continued to launch strikes against it.

The Trump administration also ordered the deployment of around 2,000 soldiers from the Army's 82nd Airborne Division to the Middle East, in addition to about 5,000 soldiers expected to begin arriving in the region in the coming days.

Reports have also emerged indicating that central banks are selling gold to defend their currencies. The Turkish central bank is preparing to expand its tools to defend the lira against war-related volatility, which includes the possibility of using its substantial gold reserves.

The bank has also discussed the possibility of conducting gold swaps for foreign currencies in the London market, according to sources familiar with the matter.

While central bank sales may negatively impact market sentiment, Wong noted that these moves do not represent a liquidation of reserves. He added: "In fact, the intention to use gold swaps for foreign currencies underscores the role of the precious metal in managing reserves."

The Role of Central Banks in the Gold Market

The accumulation of precious metals by central banks since 2022 has been one of the main drivers of the years-long upward trend in gold prices, although the pace of purchases had already slowed as this year began.

Spot gold rose by 2.5% to $4,586.7 per ounce at 10:08 AM Singapore time.

Silver also increased by 3.3% to $73.56 per ounce, after ending the previous session up by 3%. Both platinum and palladium rose, while the Bloomberg dollar spot index fell by 0.2%.