Gold Prices Rise sharply after Progress in Hormuz Strait

Illustration of gold bars. Photo: Pexels.

JAKARTA - Gold prices recorded the largest jump in six months after progress in opening the shipping lane in the Strait of Hormuz eased energy price pressures. The market also narrowed its forecast for a rise in US interest rates.

The Straits Times, citing Bloomberg, reported that gold prices rose 1 percent to $4,347.90 per ounce at 09:57 Singapore time on Thursday, August 6.

A day earlier, the precious metal jumped 4.1 percent. The increase was the largest since February 3.

Gold movements were triggered by news that Iran had reached an understanding with Oman regarding a proposed shipping route through the Strait of Hormuz. The temporary route opens the opportunity for some energy flows to pass through one of the world's most important oil trading routes.

Oil prices are still moving down. Brent crude is trading close to $79 a barrel, while West Texas Intermediate or WTI is in the range of $75.

WTI has fallen 11 percent in the first three sessions this week. Brent and WTI are the two main benchmarks for world oil prices.

Deputy Foreign Minister of Iran Kazem Gharibabadi said the shipping lane would be used for two to four months.

"This understanding does not mean the full reopening of the strait," Gharibabadi told Iranian media.

US President Donald Trump said Washington and Tehran's negotiations were still ongoing. He admitted that he preferred to reach an agreement than to end the war through military operations.

Signs of progress toward ending the more than five-month-old Iran war have shifted market expectations on the Federal Reserve's policy.

Markets are now fully pricing in one more U.S. rate hike by the end of 2026. A week earlier, market participants still expected two hikes.

Gold prices and interest rates usually move in opposite directions. Gold does not provide interest or dividends. When interest rates are lower, bonds and savings become less attractive so that interest in gold tends to increase.

Lower interest rates also typically weaken the U.S. dollar. A weaker dollar makes gold more affordable for buyers using other currencies.

Bloomberg Dollar Spot Index, a measure of the dollar's movement against a basket of major currencies, fell slightly after closing down 0.2 percent on August 5.

However, the possibility of an interest rate hike has not disappeared. Fed Governor Lisa Cook said she was ready to support a rate hike if inflation did not slow down.

Cook previously supported the Fed's decision to keep rates on hold at its July policy meeting. He cautioned that inflation would be more difficult to control if it persisted above the 2 percent target for too long.

Gold prices have fallen nearly 20 percent since the U.S.-Iran war began in late February. The conflict is pushing energy prices, strengthening inflationary pressures, and opening the door for higher interest rates to last longer.

TD Securities analysts, including Ryan McKay, believe the reduced macroeconomic pressure and the hope for a US-Iran deal are giving a big boost to the precious metal.

According to them, discretionary macro investment funds have increased their positions more than doubled since June. This type of fund places investments based on estimates of economic direction, interest rates, currencies, and commodity prices.

Support also came from large funds on the Shanghai Futures Exchange as well as funds flowing into exchange-traded gold-based investment products or gold ETFs in Asia.

However, TD Securities assessed that the still tight energy market remains a major obstacle to a longer gold price rise.

Separately, the Bank of Korea is preparing rules for buying refined gold in South Korea. The central bank is working with local manufacturers, Korea Exchange, and Korea Securities Depository.

If implemented, the purchase will be the first of domestically produced gold since 1967. So far, gold from the South Korean manufacturer's refining has been exported more.