Gold rose more than 2% on Monday after US and Iran officials said they had reached an initial agreement to end their war, pushing oil prices lower and easing concerns about inflation and higher interest rates.
Spot gold climbed 2.5% to $4,322.87 per ounce by 0312 GMT, hitting its highest level since June 9 and extending gains for a third straight session. US gold futures for August delivery rose 2.5% to $4,344.80.
US and Iranian officials said on Sunday they had agreed on a framework to end their war, halt the US blockade of Iran and reopen the Strait of Hormuz.
The pact will be officially signed on Friday in Switzerland, Pakistani Prime Minister Shehbaz Sharif said in a post on X.
The US dollar fell to a 10-day low, making greenback-priced bullion cheaper for other currency holders, while oil prices slipped more than 4%.
"Lower oil prices and a softer dollar, stemming from reduced geopolitical risk and the anticipated reopening of the Strait of Hormuz, are helping to calm inflation expectations," said Tim Waterer, chief market analyst at KCM Trade.
"This combination is providing the precious metal with its best tailwind in recent weeks, though sustainability will depend on how durable the peace agreement proves to be."
Gold prices have fallen about 20% since the start of the US-Israeli war against Iran in late February. The effective closure of the Strait of Hormuz has led to a sharp increase in global oil prices, stoking inflation concerns and raising expectations of interest rates staying higher for longer.
Bullion loses appeal in a high-interest-rate environment as it is a non-yielding asset.
Markets have scaled back expectations for a US rate hike in December to 48% after the peace deal, down from 69% last week, according to the CME FedWatch tool.
Investors now await the Federal Reserve policy decision and remarks, the first under Chair Kevin Warsh, on Wednesday, with rates widely expected to remain unchanged.
"Currency debasement concerns, fiscal risks and ongoing geopolitical fragmentation continue to underpin long-term demand (for gold). A moderation in energy-led inflation could help these themes regain traction," OCBC said in a note.
Spot silver rose 3.6% to $70.39 per ounce, platinum gained 3.3% to $1,773.70 and palladium climbed 3.3% to $1,324.75.
