Gold prices trimmed part of their earlier gains on Thursday but remained close to a seven-week high.
Optimism surrounding a possible agreement to reopen the Strait of Hormuz helped ease concerns about energy-driven inflation. It also reduced expectations that the Federal Reserve may need to raise interest rates again.
At 00:57 ET, or 04:57 GMT, spot gold rose 0.4% to $4,262.54 per ounce.
Gold futures also gained 0.4% to $4,321.65 per ounce.
Silver increased 0.2% to $62.17, while platinum climbed 1.3% to $1,756.50 per ounce.
Strait of Hormuz Hopes Support Gold Prices
Gold remained supported despite some profit-taking by traders.
Reports of a proposed agreement involving Iran and Oman raised hopes that the five-month conflict between Tehran and Washington could move closer to a resolution.
The agreement could reportedly give Iran control over vessels entering the Gulf through the Strait of Hormuz.
Investors interpreted the development as a possible step towards reducing disruptions to global energy supplies.
Oil prices moved lower following the report, reflecting expectations that shipping conditions in the Gulf could improve.
Lower Energy Prices Ease Inflation Concerns
The possibility of lower oil and energy prices has reduced fears of renewed inflationary pressure.
Energy costs can have a major effect on inflation because they influence transport, manufacturing and household expenses.
As a result, investors have lowered their expectations for additional Federal Reserve interest rate increases.
Markets now estimate a roughly 55% chance of a September rate hike.
That probability stood near 67% earlier in the week.
Treasury Yields and Dollar Support Bullion
Lower U.S. Treasury yields also helped support gold prices.
Gold does not pay interest. Therefore, it often becomes more attractive when government bond yields decline.
A relatively subdued U.S. Dollar Index provided additional support.
Because gold is priced in dollars, a weaker U.S. currency can make the metal more affordable for buyers using other currencies.
U.S. Payrolls Become the Next Major Catalyst
Despite the recent rally, investors remain focused on upcoming U.S. employment data.
The figures could provide further clues about the Federal Reserve’s next interest rate decision.
The ADP National Employment Report showed that private-sector hiring slowed in July.
Attention now turns to Friday’s nonfarm payrolls report, which is expected to offer a broader picture of the U.S. labor market.
A weaker-than-expected report could reduce the chances of further rate hikes and support gold.
However, stronger employment growth could revive expectations of tighter monetary policy and pressure bullion prices.
Gold Breaks Above Technical Resistance
ANZ analysts said gold’s rally gained momentum as hopes of reopening the Strait of Hormuz reduced inflation concerns.
The development also made additional Federal Reserve rate hikes appear less likely.
According to the analysts, gold prices accelerated after breaking above an important technical resistance level.
A sustained move above that level could encourage further buying from technical traders.
Federal Reserve Keeps Rate Hike Option Open
Despite easing expectations, Federal Reserve officials have not ruled out another interest rate increase.
Fed Governor Lisa Cook warned that policymakers may need to act if inflation fails to slow.
She indicated that the central bank cannot wait until inflation returns fully to its 2% target before making policy decisions.
Her comments suggest that the outlook for gold will continue to depend heavily on inflation data, labor market conditions and Federal Reserve guidance.
Gold Outlook Remains Sensitive to Economic Data
Gold continues to benefit from lower bond yields, a restrained dollar and reduced concerns about energy-driven inflation.
However, the upcoming U.S. payrolls report could determine whether the rally extends further.
Investors will also monitor developments in the Strait of Hormuz, oil prices and expectations for the Federal Reserve’s September meeting.
