Gold gains on softer dollar as US-Iran peace deal hopes rise

Gold prices rose on Thursday, supported by a softer U.S. dollar and lower Treasury yields, as investors grew optimistic about a potential end to the Middle East war, which has stoked fears of higher inflation. Spot gold rose 0.7% to $4,821.96 per ounce by 0723 GMT. U.S. gold futures for June delivery gained 0.4% to $4,843.40. The U.S. dollar hovered around its lowest level in six weeks, making greenback-denominated commodities, including bullion, more affordable for holders of other currencies. Benchmark 10-year U.S. Treasury yields fell 0.1% as hopes of a U.S.-Iran peace deal eased bets for higher-for-longer U.S. interest rates. "The primary driver (for gold) is the optimism about a U.S.-Iran ceasefire that is pushing down longer-term bond yields globally and that kind of created a lower opportunity cost of holding gold and silver," said Kelvin Wong, a senior market analyst at OANDA. "If we start to see a break above $4,900, further potential upside cannot be ruled out towards the next intermediate resistance zone, which is at the psychological level of $5,000." Optimism grew that the war may be near an end, with a key Pakistani mediator in Tehran and the Trump administration talking up hopes for a deal that would open the crucial Strait of Hormuz. On the other hand, Israel's cabinet met on Wednesday to discuss a possible ceasefire in neighbouring Lebanon, a senior Israeli official said, more than six weeks into its war with Iran-backed Hezbollah. Spot gold prices have fallen more than 8% since the Iran war began in late February amid concerns that elevated energy prices could feed into inflation and keep global interest rates higher. While gold is considered a hedge against inflation, higher interest rates weigh on the non-yielding metal's demand. In the U.S., traders now see a 29% chance of a 25-basis-point interest rate cut this year. Before the war, there were expectations of two reductions for this year. Among other metals, spot silver rose 1.4% to $80.12 per ounce, platinum gained 1% to $2,130.25, and palladium was up 0.9% at $1,587.25.