Gold rallied more than 2% on Wednesday, climbing above the key $4,200-an-ounce level as growing optimism over an interim agreement to reopen the Strait of Hormuz eased inflation concerns, prompting investors to scale back expectations for further Federal Reserve rate hikes.
At 02:07 ET (06:07 GMT), XAU/USD jumped 2.1% to $4,162.79 an ounce, while Gold Futures climbed 1.7% to $4,222.92. XAG/USD rallied 3.2% to $61.45 an ounce, while XPT/USD gained 1.8% to $1,768.95.
Hormuz deal hopes ease inflation fears, boost bullion
Gold extended gains for a third straight session after signs of progress toward reopening the Strait of Hormuz reduced fears that prolonged disruptions to global energy supplies would keep inflation elevated.
Qatar said a proposal had been drafted to restore shipping through the vital waterway, while Axios reported that Washington, Tehran and Oman were close to reaching an agreement, with U.S. officials targeting an announcement as early as Wednesday.
Treasury Secretary Scott Bessent also said a deal to reopen the Strait could come as soon as Tuesday or Wednesday, further lifting expectations that energy markets may stabilize.
The prospect of lower oil prices prompted traders to further reduce expectations for Federal Reserve tightening. Markets are now fully pricing in just one U.S. rate increase by year-end, compared with two hikes as recently as last week.
The US Dollar Index also edged lower, making dollar-denominated bullion more attractive for overseas buyers and adding further support to precious metals.
Chinese demand, Fed comments keep focus on policy outlook
Gold has fallen more than 20% since the U.S.-Iran conflict erupted in late February, as surging oil prices fueled inflation concerns and strengthened expectations that interest rates would remain higher for longer.
Although the Federal Reserve left policy unchanged for a fifth consecutive meeting last week, three policymakers dissented in favor of raising rates.
Philadelphia Federal Reserve President Anna Paulson said she remains "open-minded" about the policy outlook amid mixed signals on whether current monetary settings are restrictive enough.
Separately, Kansas City Fed President Jeff Schmid argued that higher interest rates may still be needed to restore price stability, warning against assuming inflationary pressures from supply shocks would fade quickly.
Support for bullion has also emerged from China in recent weeks. Bloomberg data showed Chinese gold-backed exchange-traded funds recorded inflows for a 14th consecutive trading day through Monday, the longest streak since March, suggesting institutional investors have returned to the market after months of outflows.
The renewed buying has helped stabilize bullion above the psychologically important $4,000-an-ounce level, reinforcing signs that Chinese demand is cushioning the market despite broader uncertainty over the Fed’s policy path.