Gold Rises on Fed Comments, Report of Trump Weighing War Exit

An employee handles one kilogram gold bullions at the YLG Bullion International Co. headquarters in Bangkok, Thailand, on Friday, Dec. 22, 2023. Gold headed for a weekly gain after US price data came in cooler than forecast, reinforcing expectations for multiple interest rate cuts by the Federal Reserve next year. Photo by Chalinee Thirasupa /Bloomberg

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(Bloomberg) — Gold extended two days of gains on Federal Reserve comments that eased rate-hike bets and a report that US President Donald Trump is willing to end the Iran war without reopening the Strait of Hormuz.

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Bullion jumped as much as 2.4% on Tuesday before paring some gains to trade near $4,560 an ounce. The advance came following a report from the Wall Street Journal that Trump told aides he’s willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed, raising hopes for an end to the month-long conflict. 

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Earlier, Fed Chair Jerome Powell said long-term US inflation expectations appeared to be in check, despite the war-driven spike in oil prices that stoked inflationary pressures and rate-hike bets. The central bank’s policy was “in a good place for us to wait and see,” he said. 

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Falling Treasury yields following Powell’s comments gave gold a lift, as they reduced the opportunity cost of holding bullion. Still, the money market is betting on less than one rate cut by end of the year and yield curves remain steep.

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That means the market “has yet to transition to pricing in an economic downturn,” said Liu Shiyao, an analyst at Zijin Tianfeng Futures Co., adding that “gold is likely to remain under pressure with limited scope for a swift recovery” in the meantime.  

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Traders were also assessing mixed signals from the US, as the White House threatened to escalate strikes on Iran, including on critical civilian infrastructure. Meanwhile, Tehran approved legislation to impose fees on vessels transiting the Strait of Hormuz and is pushing the Houthi militant group in Yemen to prepare for a renewed campaign against shipping traffic in the Red Sea. Iran also attacked a Kuwaiti crude carrier that was in Dubai, Kuwait Petroleum Corp. said on Tuesday.

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“Markets are trading very much on headlines, when in reality there appears to have been very little change,” said David Wilson, director of commodity strategy at BNP Paribas SA. “What this does suggest is, however, that if there is a peace deal in the offing, gold will rally sharply. Conversely, if there is some form of land invasion by US forces, we can expect gold to do the opposite and trend lower.”

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The developments have raised concerns about the potential for a prolonged conflict that could see energy prices rise further and lead central banks to hike rates to tame inflation — a negative for non-yielding precious metals. That, along with a liquidity squeeze in broader financial markets, has set gold on track for a monthly decline of around 13%.

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Spot gold rose 1% to $4,558 an ounce as of 12:15 p.m. Singapore time. Silver climbed 2.8% to $72.04 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index fell 0.1% after ending the previous session up 0.3%.

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—With assistance from Masaki Kondo.

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