Gold gains as traders assess latest setbacks in U.S.-Iran talks

The U.S. dollar and bond yields trimmed gains, both positive moves for gold as it’s priced in the greenback and pays no interest Photo by Chris Ratcliffe/Bloomberg

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Gold advanced as traders assessed the latest setbacks surrounding United States-Iran peace talks and its impact on reopening the Strait of Hormuz.

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The U.S. and Iran are in a deadlock over how to end the war and reopen Hormuz, with both sides far apart on a framework to end the war and reopen the critical waterway, with President Donald Trump calling the Islamic Republic’s reply to his proposed peace plan unworkable.

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Bullion gained as much as 0.7 per cent on Monday, erasing earlier losses of as much as 1.4 per cent. Oil climbed as the near-halt of traffic through Hormuz renewed concerns about a flare-up in inflation. The dollar and bond yields trimmed gains, both positive moves for gold as it’s priced in the greenback and pays no interest. Silver surged more than six per cent.

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Trump’s rejection of Iran’s latest proposal shows that his priority appears to be curbing Iran’s nuclear ambition, which means “either further escalation in the Middle East or stalling talks at best,” Priyanka Sachdeva, an analyst at Phillip Nova PTE Ltd., said in a note.

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“Gold prices continue to reflect a broad sideways consolidation, as markets remain trapped between geopolitical anxiety and rising inflation worries,” she said. The combination is likely to keep gold “directionless despite extreme volatility across global markets.”

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Indian Gold Purchases

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Elsehwere, Indian Prime Minister Narendra Modi on Sunday called on citizens to avoid buying gold for at least a year, in order to preserve foreign-exchange reserves for costly fuel shipments. India is the world’s second-biggest importer of bullion, and gold constitutes the largest share in its import bill after oil.

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Meanwhile, Federal Reserve Chair Jerome Powell’s tenure is set to end this week. His term has been marked by his resistance against political influence. Perceived threats to the Fed’s independence had been central to gold’s rally early this year.

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Spot gold rose 0.3 per cent to US$4,730.57 an ounce as of 10:20 a.m. in New York. Silver gained 5.8 per cent to US$84.99. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index was little changed.

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—With assistance from Yihui Xie and Jack Ryan.

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