Gold prices rose on Tuesday amid hopes of de-escalation in the Middle East conflict, but remained on track for their worst monthly performance in more than 17 years as fading expectations of US interest rate cuts weighed on sentiment.
Spot gold increased 1.5% to $4,578.89 per ounce as of 0235 GMT.
US gold futures for April delivery climbed 1.2% to $4,611.30.
The US dollar weakened, making dollar-denominated commodities more affordable for buyers using other currencies.
“Gold prices are bouncing in early Asia-Pacific trade after US President Donald Trump told aides he is willing to end the US military campaign against Iran… That triggered a risk-on response from financial markets,” said Ilya Spivak, head of global macro at Tastylive.
Reports indicated that Trump is open to ending the military campaign even if the Strait of Hormuz remains largely closed, leaving its reopening for a later stage.
“Gold has been stabilizing for about a week now, with a rally last Friday a particular standout. That came alongside a drop in Treasury yields that seems to suggest the markets are starting to see the Iran war as a recession risk,” Spivak added.
Despite the day’s gains, bullion has declined more than 13% so far this month, putting it on course for its sharpest fall since October 2008. The drop has been driven by a stronger dollar and reduced expectations of a US Federal Reserve rate cut this year.
However, gold prices are still up around 5% for the current quarter.
Traders have largely ruled out the possibility of a rate cut this year, as rising energy prices are expected to fuel inflation.
Gold typically performs well in a low-interest-rate environment since it does not offer yields.
Before the escalation of the Middle East conflict, markets had anticipated two rate cuts this year, according to CME Group’s FedWatch tool.
Federal Reserve Chair Jerome Powell said on Monday that the central bank can afford to wait and assess how the conflict impacts the economy and inflation, noting that policymakers often look past temporary shocks such as oil price spikes.
Meanwhile, other precious metals also posted gains, with spot silver rising 3.3% to $72.27 per ounce, platinum gaining nearly 1% to $1,916.77, and palladium increasing 2.3% to $1,437.76.
