Investing.com – Gold prices gained on Tuesday as investors kept tabs on efforts to quell geopolitical tensions in the Middle East, which could temper oil-driven inflation risks and shape the Federal Reserve’s interest-rate outlook.
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By 08:42 ET (12:42 GMT), had risen by 1.2% to $4,055.23 an ounce, while had climbed by 1.1% to $4,059.45 an ounce.
Crude prices turned higher, with the , the global oil benchmark, last trading back above the $90 a barrel level it briefly crested on Monday.
A glimmer of hope for a diplomatic resolution between the United States and Iran remains, especially after a senior Iranian official told Reuters that mediators had proposed a 10-day ceasefire aimed at salvaging an interim ceasefire deal and creating space for broader negotiations. But a renewed exchange of strikes in recent weeks has shown few signs of letting up. Critically, this has cast uncertainty around the status of the Strait of Hormuz, a chokepoint through which a fifth of the world’s oil and liquefied natural gas passed before the start of the war in late February.
Iran-backed Houthis in Yemen have also threatened to impose a blockade of Saudi ships, possibly opening up a new front in the war.
Concerns have abounded that the developments will stem global oil flows, sparking a burst of inflation and leading central banks to consider interest rate hikes in response. The Federal Reserve is tipped to stand pat on rates at a policy meeting next week, but there is about a 54% chance of a quarter-point increase at its following gathering in September, according to CME FedWatch.
Such a scenario may not bode well for gold, a non-yielding asset which tends to underperform in elevated rate environments. Higher borrowing costs can increase the opportunity cost of holding bullion.
“Higher real-rate expectations have pressured gold, while visible investment flows remain inconsistent. This environment is likely to persist in the near term, requiring investors to adopt a longer-term perspective when considering gold exposure,” said Dominic Schnider, Head Global FX and Commodity at UBS Global Wealth Management, in a note.
Beyond gold, rose 4.4% to $58.9175 an ounce, while ticked up 1.9% to $1,632.80.
(Roushni Nair contributed reporting)