Gold touches seven-week peak on Strait of Hormuz hopes

Gold advanced for a fourth session today (6 August) and touched its highest level in seven weeks, helped by a softer dollar and lower Treasury yields, on growing hopes over the Strait of Hormuz reopening.

Spot gold was up 0.5% at $4,265.22 per ounce by 0330 GMT, after hitting its highest level since 18 June earlier. On Wednesday, bullion posted its biggest daily gain since February.

"The sharp rally came on building optimism that a diplomatic breakthrough in the Middle East is close to being finalised. This in turn would keep downward pressure on oil prices and reduce the need for central banks to raise rates, providing a clear tailwind for gold," IG market analyst Tony Sycamore said.

A sustained break above the 200-day moving average could pave the way for a stronger recovery towards the $5,000 mark, he added.

A proposed deal between Iran and Oman to help end five months of war between Iran and the United States would give Tehran control over ships entering the Gulf through the Strait of Hormuz, a senior Iranian source and two regional officials told Reuters.

Spot gold has declined 19% since the onset of the US-Iran conflict on 28 February, due to fears of energy-driven inflation pushing interest rates higher. Gold tends to perform better in a low interest-rate environment as it yields no interest.

Market expectations for a September US rate hike have eased to 55% from 67% two days earlier.

The yield on benchmark US 10-year notes fell and the US dollar index was also under pressure. A weaker US currency makes dollar-priced commodities cheaper for other currency holders.

Investors are awaiting the July US nonfarm payrolls report scheduled for release on Friday. The ADP national employment report showed that US private payrolls growth slowed in July.

Among other metals, spot silver fell 0.1% to $62.02, while platinum was up 1.2% at $1,755.18 after hitting its highest level since June.