Gold rose yesterday amid hopes of a potential extension of the ceasefire between the United States and Iran, but it remains on course to post losses for a third consecutive month as concerns over inflation driven by higher energy prices reinforced expectations of interest rate hikes.
During trading, spot gold gained 0.8% to $4,528.19 per ounce. The metal had fallen to a two-month low on Thursday, hitting $4,365.76, before closing higher.
Gold is down 2% this month, while US gold futures for August delivery rose 0.6% to $4,559.10.
Giovanni Staunovo, analyst at UBS, said: "Gold still has an inverse correlation with oil, which affects inflation and monetary policy. Lower oil prices reduce the likelihood of interest rate hikes, which is positive for gold."
Oil futures fell more than 1% and are on track to record their largest weekly decline since early April, after reports that the United States and Iran reached an agreement the day before yesterday to extend the ceasefire and lift restrictions on navigation through the Strait of Hormuz. However, US President Donald Trump has not yet approved the deal, and Iranian state media said it has not been finalised.
US inflation rose in April at its fastest pace in 3 years, driven by higher energy prices resulting from the war with Iran, reinforcing economists' expectations that US interest rates will remain unchanged until next year. Some experts even forecast an interest rate increase by the end of this year.
Gold is a hedge against inflation, but it comes under pressure when interest rates rise because it yields no return.
Rothbart & Co, a precious metals trading firm, said in a note to clients: "Trading in May 2026 was characterised by range-bound movement in global markets after the clear volatility and turbulence seen in the first quarter. Geopolitical tensions and inflation concerns continue to weigh on sentiment, but reduced safe-haven demand and expectations of interest rate hikes pressured precious metals during the month."
As for other precious metals, spot silver fell 0.2% to $75.51 per ounce, platinum declined 0.3% to $1,917.96, while palladium rose 0.4% to $1,373.88. Platinum is headed for a monthly loss, while silver and palladium are on track to post monthly gains.