Oil Drop Eases Inflation Concerns

SadaNews - Gold rose after a ceasefire between the United States and Iran over the weekend eased oil supply risks and inflation fears.

The precious metal climbed as much as 1.6% to exceed $4,100 an ounce in trading, after gaining nearly 1% the previous week.

The United States halted a series of strikes against Iran that had lasted nearly two weeks, without any explanation or announcement, while Iran indicated it would refrain from retaliatory attacks and engaged in talks with Oman to resolve the critical issue concerning shipping through the Strait of Hormuz.

Oil plunged at the start of the week's trading, with Brent crude, the global benchmark, dropping over 7% to below $90 a barrel in the first few minutes before trimming its losses.

Gold has largely hovered around the $4,000 an ounce level since late June, which some traders view as a key support level.

Iran War Pressures Precious Metal Prices

The precious metal has fallen more than a fifth since the U.S. and Israel launched strikes on Iran in late February, which helped to end a years-long rally that had driven the metal to a record near $5,600 the previous month.

Following the temporary ceasefire last month, renewed fighting in the Middle East has fueled inflationary pressures in recent weeks, increasing the likelihood that the Federal Reserve will raise interest rates, which acts as a headwind for non-yielding gold.

Federal Reserve watchers expect this week's interest rate decision to be contentious, given the recent rise in energy costs coinciding with a lower-than-expected reading of consumer prices in June.

While the current truce in fighting is positive for gold, markets require "an effective resolution between the U.S. and Iran before gold can surpass the current price range of $4,000 to $4,200," said Justin Lin, an analyst at Global X ETFs to Bloomberg. He added: "Yields and inflation expectations will remain elevated as long as the conflict persists, which is the primary factor currently hindering gold."

Spot gold rose 1.3% to $4,103.43 an ounce at 9:45 a.m. in Singapore. Silver jumped 2.7% to $59.75 an ounce. Platinum and palladium also increased. The Bloomberg Dollar Spot Index, a measure of the U.S. currency, fell 0.2%.