Gold set for best day since early Feb amid easing dollar, rising Hormuz deal hopes

Gold prices hit over a one-month high on Wednesday as precious metal markets caught a bid from an extended fall in the dollar and hopes for an imminent peace deal between the U.S. and Iran to reopen the Strait of Hormuz.

At 14:36 ET (18:36 GMT), spot gold surged 4.4% to $4,258.18/oz, while gold futures jumped 4% to $4,317.07/oz. Both contracts hit their highest since June 17 and were on track for their best day since early February.
Several U.S. officials, including President Donald Trump, asserted that a deal to reopen the Strait of Hormuz was close.

“We’re moving along very nicely. We’ll find out. We’ll know in 48 hours, I would say,” Trump told reporters on Tuesday evening.

“A lot of progress has been made. They called me and they said, ’Please, let’s talk.’ They want to talk. The funny thing is, they never mention that…I think they’d be very smart to make a deal. We’ll see what happens,” he added.

Iran’s foreign ministry said talks between Tehran and Oman over the strait were ongoing. Spokesperson Esmaeil Baqaei said a joint statement was in a final review and drafting stage provided “some third parties” did not “obstruct work,” adding that the closing of the vital waterway was due to the “military aggression” of the U.S.

Iran’s state media said the U.S. would have to return to the commitments it made under an interim peace deal signed in June as a necessary condition for the reopening of the strait, citing comments made by deputy foreign minister for legal and international affairs Kazem Gharibabadi.
Oil seesawed on Wednesday, but was nursing deep weekly losses. The prospect of lower crude prices has prompted traders to dial back expectations for Federal Reserve monetary policy tightening. Markets are now fully pricing in just one U.S. rate increase by the end of the year, compared with two hikes as recently as last week. Lower rates could burnish gold by decreasing the opportunity cost of holding the non-yielding asset.

“A terrific development from an inflationary perspective would be a decline to below $70, as it would widen the path to a 2-handle Consumer Price Index by year-end and propel gains in equities and Treasuries alike,” José Torres, senior economist at Interactive Brokers, said.

The U.S. dollar index also hit a seven-week low on Wednesday, making dollar-denominated bullion more attractive for overseas buyers.

Elsewhere, the economic calendar was in focus. U.S. private jobs increased by 44k in July, according to ADP. This was lower than the estimated figure of 68k and a moderation from the 95k jobs added in June. The report echoed a similar trend in U.S. job openings data for June published on Tuesday, and comes ahead of Friday’s July nonfarm payrolls.

While the labor market indicators have been soft this week, the overall picture remains resilient, supporting the Fed’s recent switch to focusing more on its inflation mandate. Volatility in oil prices due to the ongoing conflict in the Middle East has upended inflationary dynamics and caused division among Fed policymakers as to the appropriate path of monetary policy.
Separately, an update from the Institute for Supply Management (ISM) showed economic activity in the U.S. services sector ticked up to 54.1 in July from June’s 54 reading and against a forecast of 54.5. The prices index, which measures the rate of change in prices that U.S. services companies pay for materials and inputs, accelerated from June and remained above 70 for a fourth time in five months.