Gold Steady as Traders Assess Impact of Hormuz Flare-Up on Rates

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(Bloomberg) — Gold moved in a narrow range as traders assessed the impact of a reported Iranian attack in the Strait of Hormuz on the Federal Reserve’s path for interest rates. 

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Bullion was trading around $4,245 an ounce, after ending the previous session down 0.2%. Local media reported that Iran struck “hostile targets” in the critical waterway and would seek to bar US and Israeli vessels from passing through. Tehran had earlier said a pact with Oman on opening shipping lanes was in the final stages. 

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Separately, the Houthi militant group said it conducted a “large-scale” attack against forces from Yemen’s Saudi-backed government, raising concerns about a broadening of the war into a region-wide conflict. 

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Despite the attacks, US President Donald Trump told reporters at the White House on Thursday that he thinks the war will end “pretty soon” and that the US is in control of the strait. 

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Bullion was still on track to end the week almost 5% higher, briefly spiking above $4,300 an ounce on Thursday on optimism over Hormuz reopening. That rally proved to be short-lived, as the late-week ratcheting up of tensions has revived speculation the Fed may need to raise rates to contain consumer prices. Higher rates are typically negative for gold as it pays no interest.

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Traders priced in roughly 60% chance of a hike in September after the Financial Times reported Chairman Kevin Warsh would be prepared to raise borrowing costs if inflation readings run hot in coming weeks.

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The Fed’s Bank of St. Louis President Alberto Musalem said policymakers cannot afford to tolerate higher inflation while they wait for the possibility of stronger productivity growth.

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Gold has fallen by nearly a fifth since the US-Iran war began in late February after the conflict sent energy prices soaring, stoked inflationary pressures and raised the likelihood that rates will stay higher for longer. 

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Spot gold was up 0.2% at $4,246.29 an ounce at 7:41 a.m. in Singapore. Silver rose 0.1% to $61.59 an ounce. Platinum and palladium edged higher. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed after rising 0.2% on Thursday.

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—With assistance from Wendy Wells.

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