Gold prices rise to two-week high on de-escalation hopes

Gold prices climbed on Wednesday, reaching their highest level in nearly two weeks as a weakening dollar and hopes for a de-escalation in Middle East tensions supported the market. Spot gold rose 0.4% to $4,685.79 per ounce by 0228 GMT, having touched a peak of $4,723.21 earlier in the session. In the United States, gold futures for April delivery gained 0.8% to reach $4,713.40. The U.S. dollar index fell 0.2%, making commodities priced in the greenback more attractive to holders of other currencies.

Sentiment improved following remarks from President Donald Trump, who indicated that the conflict with Iran could begin to wind down within two to three weeks. Trump stated that Tehran did not need to agree to a deal as a prerequisite for de-escalation and is expected to provide a further update in a national address on Wednesday evening.

Marex analyst Edward Meir noted that the prospect of a resolution has provided a lift to multiple asset classes.

Talks that the U.S. might wrap up the war in two to three weeks even if the Strait is not reopened reinvigorated the U.S. equity markets and pulled gold higher along with it.

Despite the gains, Meir pointed out that the potential for higher interest rates could cap the rally if inflation concerns resurface.

However, the upside is being limited due to the fact that interest rates can move higher if inflationary expectations reignite.

The metal is coming off a sharp decline in March, where it fell more than 11%, marking its worst monthly performance since October 2008. This drop was driven by a strengthening dollar and a shift in monetary policy expectations. Traders have now largely priced out the possibility of Federal Reserve rate cuts this year, a stark contrast to the two cuts expected before the conflict began on February 28. Gold typically thrives in low-interest-rate environments as a non-yielding asset.

Christopher Wong, a strategist at OCBC, suggested that a reduction in geopolitical risk could change the outlook for real yields.

Should geopolitical tensions de-escalate further, then expectations for Fed easing could return.

In other precious metals trading, Silver fell 0.8% to $74.53 per ounce. Platinum saw a gain of 0.7%, reaching $1,963.22, while Palladium rose 0.6% to trade at $1,484.84.