Editor's note: The article was updated on Wednesday morning to include comments from commodity analysts at BMO Capital Markets.
(Kitco News) - Gold prices have jumped higher early in the overnight session as investors digest news of a potential two-week ceasefire and, hopefully, a lasting peace deal in the Middle East.
In a social media post, U.S. President Donald Trump said that he has agreed to a two-week ceasefire as his administration reviews a peace plan proposed by Iran.
“We received a 10-point proposal from Iran, and believe it is a workable basis on which to negotiate. Almost all of the various points of past contention have been agreed to between the United States and Iran, but a two-week period will allow the Agreement to be finalized and consummated,” Trump said in the social media post.
Analysts note that, as expected, the announcement is pushing both gold and equities higher, while crude oil prices are moving lower. In overnight activity, S&P 500 futures are up more than 2% on the session. At the same time, West Texas Intermediate (WTI) crude oil futures are down 18%.
Shifting sentiment in the gold market has pushed prices through key resistance. Spot gold last traded at $4,809.20 an ounce, up more than 2% on the session.
Analysts have said that gold needs to break initial resistance at $4,800 an ounce to attract new bullish attention; however, the key line in the sand remains at $5,000 an ounce.
Silver prices have also jumped higher, pushing through $76 an ounce, up more than 4% on the session.
In a note published Wednesday, commodity analysts at BMO Capital Markets said they see potential for higher gold and silver prices as long as the deal lasts.
"Given speculative positioning had reduced significantly since the conflict started, metals are now on firm ground to see further upside as long as positive conflict news flow continues, albeit oil prices are not expected to snap back to pre-conflict levels imminently," the analysts said.
Analysts have said that gold will benefit from an end to the conflict, as it could allow the Federal Reserve to consider cutting rates by the end of the year.
Despite heightened geopolitical risks due to the war with Iran, gold prices have struggled to attract a safe-haven bid. Last month, gold prices dropped more than 11%, marking their worst monthly loss since the early 1980s. Analysts said gold prices declined as investors and central banks were forced to sell the precious metal to meet liquidity needs.
In a double hit, rising inflation fears have driven interest rate expectations higher, increasing gold’s opportunity cost as a non-yielding asset.
Rising oil prices, due to the ongoing chaos in the Middle East, have created significant global supply-chain issues, driving oil prices above $100 a barrel. Rising energy prices have threatened to push inflation higher, forcing many central banks to halt their current easing cycles.
Although the two-week ceasefire is expected to ease supply-chain issues, some analysts have said that it is still too early to determine how much damage has been done to the global economy and what impact higher oil prices will have on inflation.
“Focus will also now fall heavily on the economic damage that the conflict, as well as the surge in energy prices, has wrought on the global economy, not only from an inflationary perspective, but also growth headwinds which will stem from the subsequent negative demand shock. Providing that energy prices do indeed now begin to normalise, central banks are likely to ‘look through’ the upcoming rise in headline inflation as being temporary in nature, significantly reducing the chances of any policy tightening in the near-term – which, I’d always said was a sign of markets getting ahead of themselves,” said Michael Brown, Senior Market Analyst at Pepperstone. “Of course, the significant risk here is that the ceasefire doesn’t hold, that we then see a re-escalation in the conflict, and are essentially back to ‘square one’ all over again. Were that to happen, which we of course hope doesn’t come to pass, we at least know the playbook only too well from the last few weeks – higher crude, the dollar as the only safe haven that ‘works’, and everything else from stocks to bonds to metals coming under considerable pressure.”
