NextFin News - Gold erased its earlier losses on Thursday following reports that the US and Iran are on the verge of a deal to extend their ceasefire, offering a glimmer of diplomatic hope to a market battered by weeks of escalating Middle East conflict. According to Axios, the proposed agreement is currently pending final approval from U.S. President Trump. The sudden shift in momentum caught traders off guard, reversing a multi-day slide that had dragged the precious metal down to around $4,405 an ounce earlier in the session.
Prior to the report, bullion had extended a painful two-day decline, shedding 2.6% in the previous sessions as geopolitical tensions and hawkish central bank commentary combined to squeeze the metal. Fresh U.S. airstrikes on an Iranian military base near the Strait of Hormuz had initially dashed hopes for a diplomatic breakthrough. A U.S. official described those strikes as defensive, reporting that American forces had shot down four Iranian attack drones targeting a commercial vessel. The military action came hours after U.S. President Trump expressed dissatisfaction with the progress of negotiations, prompting investors to brace for a prolonged conflict.
The market reaction highlights a counterintuitive shift in how gold behaves during modern geopolitical crises. Historically, escalating warfare drives capital into precious metals as a classic safe haven. Yet, the current conflict has instead bolstered the U.S. dollar and fueled severe inflation fears, which in turn pressures gold. Because the near-closure of the Strait of Hormuz has triggered sharp spikes in global energy costs since late February, central banks have been forced to reconsider their monetary easing plans.
This dynamic was reinforced on Wednesday when Federal Reserve Governor Lisa Cook stated that inflation is heading in the wrong direction, adding that she would be prepared to raise interest rates if price pressures persist. Higher interest rates raise the opportunity cost of holding non-yielding bullion, which has slumped more than 16% since the conflict erupted in late February, nearly erasing its year-to-date gains.
According to Justin Lin, an investment strategist at Global X ETFs Australia, traders are losing confidence in the traditional safe-haven narrative. Lin, who has historically maintained a cautious stance on precious metals during periods of aggressive monetary tightening, noted that investors currently find better utility for their capital elsewhere, particularly as they prepare for major upcoming initial public offerings in both Asia and the U.S. He suggested that if energy prices remain elevated, gold could easily slide further to seek technical support in the $4,000 to $4,250 range.
While Lin's view reflects a growing skepticism among some exchange-traded fund managers, other market participants argue that a finalized truce could quickly reverse these headwinds. A verified ceasefire would likely cause international oil prices to decline significantly, easing the inflation expectations that have kept the Federal Reserve hawkish. Under this scenario, a weaker U.S. dollar and renewed expectations for interest rate cuts would provide a powerful tailwind for a gold recovery, potentially pushing prices back toward the $4,800 level seen earlier in the year.
However, the path to a lasting truce remains highly uncertain. The potential deal relies entirely on the final sign-off from U.S. President Trump, whose administration has maintained a highly volatile negotiating posture. Any breakdown in the talks or a resumption of hostilities in the Strait of Hormuz would likely send oil prices surging once more, reinforcing the high-interest-rate environment that has kept gold on the defensive. Spot gold was trading down 1.1% at $4,404.89 an ounce in Singapore before the Axios report sparked the afternoon rebound, while silver fell 2% to $73.19.
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