Gold prices staged their sharpest rally in over a week on Monday, vaulting 3.6 per cent to touch $4,351.6 per troy ounce, as Washington and Tehran announced a preliminary memorandum of understanding to end their Gulf conflict. The proposed truce, which envisages Iran reopening the Strait of Hormuz within thirty days in exchange for a lifting of US naval blockades, sent crude oil prices tumbling and eased global inflationary angst. For bullion, which pays no yield and had slumped 17 per cent since hostilities began, the prospect of moderating price pressures and a less aggressive trajectory for interest rates proved a powerful catalyst.

By Tuesday, the initial euphoria had given way to a more measured tone, with spot gold edging up just 0.2 per cent to $4,315.87 an ounce in early London trading, while US futures for August delivery slipped 0.3 per cent to $4,337.10. Investors across the Middle East and Asia paused to scrutinise the framework of the accord, which is expected to be formally signed in Geneva on Friday. “We have had a good run in gold prices ever since late Thursday on the Iran news,” noted one veteran commodities analyst. “I think this euphoria rally might last for another few days culminating in Friday’s signing ceremony.” Yet the cautious optimism was tempered by the acknowledgement from both capitals that a permanent truce remains to be negotiated, leaving a residual risk premium in the market.

Viewed from Washington, the deal represents a strategic off-ramp from a confrontation that had choked global energy flows and rattled consumer confidence. In Tehran, state-aligned media framed the agreement as a diplomatic victory that averts further economic strangulation. For commodity markets, the immediate consequence was a sharp retreat in oil prices, which in turn dragged down benchmark bond yields and the US dollar index. This triple easing of inflationary, credit and currency pressures created an unusually supportive environment for gold, which had languished near multi-month lows only a week earlier.

Looking ahead, the metal’s near-term trajectory hinges as much on central bank policy as on geopolitics. The US Federal Reserve’s meeting this week looms large: any signal that policymakers remain hawkish on rates could quickly reverse gold’s gains, as higher yields raise the opportunity cost of holding the non-interest-bearing asset. Analysts in London and Mumbai suggest that while the détente in the Gulf may keep a floor under prices, a sustained rally above $4,400 will require confirmation that the truce is durable and that the Fed is prepared to pause its tightening cycle. For now, the market is caught between relief over a potential end to hostilities and the sober recognition that both the diplomatic endgame and the monetary policy outlook remain unsettled.