Gold climbs 1% as US-Iran deal hopes rise after Lebanon ceasefire

Gold prices advanced on Thursday as improving prospects for a US-Iran nuclear agreement and a separate Israel-Lebanon ceasefire reduced the geopolitical risk premium that had driven the metal near record levels.

Gold rose to around $4,480 an ounce, up 1% from the prior session, as diplomatic momentum gathered following a series of breakthroughs in Middle East peace talks. The advance came after spot gold had fallen to $4,440.27 on Wednesday, its lowest in two months, as markets priced in a potential de-escalation of regional hostilities.

"The market is pricing in a significant reduction in Middle East tensions, which removes a key support for gold," said David Meger, director of metals trading at High Ridge Futures. "But the move higher today suggests uncertainty remains about the durability of any agreement."

US and Iranian negotiators reached a tentative agreement Thursday to extend their ceasefire by 60 days and hold a new round of talks on Iran's nuclear program, a US official said. The development followed an Israel-Lebanon ceasefire announcement that further reduced the regional risk premium. Brent crude slipped more than 1% to $92.50 a barrel on the news, while European equities rose, with the Euro Stoxx 50 gaining 0.5%.

What a US-Iran Deal Means for Gold

A comprehensive US-Iran agreement could exert further downward pressure on gold by removing the inflation premium that war-driven energy costs have injected into the global economy. Oil prices surged after the conflict disrupted shipping through the Strait of Hormuz, a waterway through which a fifth of the world's oil transits, pushing Brent above $96 a barrel in late May. The resulting energy price shock has kept inflation elevated, with the core PCE price index — the Federal Reserve's preferred inflation gauge — running well above the central bank's 2% target.

Cleveland Fed President Beth Hammack said Tuesday the central bank may need to raise interest rates if inflation pressures continue to mount, a scenario that would weigh on non-yielding gold. New York Fed President John Williams, meanwhile, said he does not believe the central bank needs to change its rate setting. The dollar index firmed for a third straight session on Thursday, adding headwinds for dollar-priced commodities.

Key Levels to Watch

Gold futures on COMEX are trading below the 9-day exponential moving average of $4,535, with the 200-day EMA at $4,282 representing the next major support level, according to technical analysis. The metal's 52-week high of $4,819, set in May, marks the upper boundary as the market weighs whether diplomatic breakthroughs will hold.

The US nonfarm payrolls report for May, due Friday, will provide the next catalyst for gold, offering clues on the labor market's response to elevated interest rates and the inflation trajectory. A strong reading could reinforce expectations of higher-for-longer rates, while a weak print might revive bets on rate cuts and support gold prices.

This article is for informational purposes only and does not constitute investment advice.