Gold advances as peace deal optimism counters hawkish Fed

NEW YORK: Gold rose, supported by the signing of an interim peace deal between the US and Iran, even as the Federal Reserve signalled a rate hike later in the year.

Bullion traded near US$4,295 an ounce following a 1.7% drop in the previous session.

US and Iranian officials signed the peace agreement electronically on Wednesday evening but it was unclear if the Strait of Hormuz had yet reopened.

The pact is expected to ease a global energy shock that has spurred inflation and rate hike bets. However, uncertainty remains over how quickly fuel prices can come down and when transits through the strait can return to pre-war levels.

The Fed kept interest rates unchanged on Wednesday, saying it would deliver price stability and removed a reference in its statement to additional rate adjustments.

Traders are now fully pricing in a tightening of monetary policy by October. Higher interest rates are a headwind for precious metals, which don’t pay interest.

For gold, the expectation of a rate hike was “already baked in” even before the latest Fed decision, Ryan Mckay, senior commodity strategist at TD Securities, said in a note.

“The overall tilt remains bearish for the yellow metal…suggesting a notable shift in the Fed outlook would likely be needed to shift the underlying market sentiment in precious metals.”

Spot gold rose 01% to US$4,297.83 an ounce as of 8.13am Singapore time. Silver gained 1.2% to US$68.75, after falling 3% in the previous session. Platinum and palladium rose. The Bloomberg Dollar Spot Index was down 0.1% after gaining 0.7% in the previous session.