Gold holds loss as traders weigh prospects for US-Iran deal

Gold held a loss, as fresh clashes in the Persian Gulf weighed on hopes for a US-Iran peace deal and reinforced concerns that inflation could keep interest rates higher for longer.

Bullion traded just above $4 500 an ounce in Asian hours on Wednesday, having fallen 1.4% on Tuesday. Hostilities between US and Iranian forces near the Strait of Hormuz occurred even as both sides touted progress toward an interim peace deal, with US Secretary of State Marco Rubio saying that any pact would likely take a few days to finalize.

Despite the impasse, confidence was growing that the three-month conflict will remain contained, with traders seizing on signs of diplomatic progress even as attacks continued. The risk-on mood has lifted equities to fresh highs.

“While hope of a US-Iran deal has offered some support, the situation remains fragile and persistent, as inflation fears continue to loom over precious metals,” TD Securities analyst Ryan McKay said in a note. “Ultimately the pricing asymmetry remains heavily skewed to the downside across the board.”

Bullion has slumped around 15% since the conflict erupted in late February. Traders ramped up rate-hike bets as the war sent energy prices soaring and fanned inflation concerns. Higher borrowing costs weigh on gold, which doesn’t pay interest.

The inflationary impact of higher energy prices is also drawing concern from officials, with Bank of Japan Governor Kazuo Ueda warning that surging oil prices could pose broader risks to the country’s inflation outlook.

“Recent inflation readings across major economies have reinforced expectations that central banks may need to maintain a hawkish stance or even consider further rate hikes in the coming months,” said Manav Modi, commodities analyst at Motilal Oswal Financial Services Ltd.

Spot gold was little changed at $4 514.36 an ounce as of 12:49 p.m. in Singapore. Silver fell 0.1% to $76.97 an ounce. Platinum and palladium both declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed after ending the previous session 0.1% higher.

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