Gold Rallies Above US$4,300 as Progress Builds on Hormuz Reopening

Gold rose as much as 1.3% to briefly surpass US$4,300 an ounce, after jumping 4.1% in the previous session — its biggest rise since Feb 3.

The rally came after Iran said it had reached an agreement with Oman on a proposed shipping route through the Strait of Hormuz, raising the prospect of some energy flows resuming through the critical waterway. Oil fell.

The route would be temporary and remain active for "two to four months", Iranian deputy foreign minister Kazem Gharibabadi told domestic media, adding that "this understanding does not mean the full reopening" of the strait.

US President Donald Trump said negotiations with Iran were ongoing and that he will "see what happens", adding he would prefer to make a deal with the Islamic Republic than end the war militarily. Earlier, he said a deal was possible as early as Wednesday US time.

Signs of progress in ending the more than five-month conflict have markets now fully pricing in only a single US rate increase by year-end, down from two as recently as last week. Less monetary tightening is generally positive for precious metals including gold, which generate no yield.

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

"Macro headwinds being pushed out on the horizon, along with US-Iran deal hope, have put some major wind in the precious metals' sails," TD Securities analysts including Ryan McKay wrote in a note.

"Macro discretionary funds have more than doubled their positions since June," they added, building on support from top funds on the Shanghai Futures Exchange and inflows to gold-backed exchange-traded funds in Asia.

However, gold's challenge is not entirely over, the analysts said, noting: "A still extremely tight energy market will remain a major hurdle for a renewed bull run."

Fed governor Lisa Cook repeated on Wednesday that she is ready to raise rates if inflation doesn't slow, warning the central bank may not have the luxury of waiting before it returns to its 2% target. Despite backing the decision to hold rates steady at July's policy meeting, she cautioned that the longer inflation remained above the goal, the tougher it would be to rein in.

Spot gold climbed 1% to US$4,287.95 an ounce as of 9.48am in Singapore. Silver rose 0.2% to US$62.19 an ounce, after jumping more than 4% in the previous session. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index fell 0.1% after ending Wednesday down 0.2%.