Gold prices vaulted more than two per cent on Monday, touching their highest levels in over a week, after US and Iranian officials announced a surprise framework agreement to end their months-long military conflict. The deal, which promises to lift the American blockade on Iran and reopen the strategic Strait of Hormuz, is set to be signed formally on Friday in Switzerland, Pakistan’s Prime Minister Shehbaz Sharif disclosed in a social media post. The news unleashed a rapid repricing across global markets, with spot bullion leaping as much as 2.5 per cent to around $4,323 an ounce in early trading, while US gold futures for August delivery climbed by a similar margin.

The rally marks a sharp reversal from the metal’s trajectory since late February, when the eruption of hostilities between the US-Israeli alliance and Iran sent crude oil prices spiralling and fanned acute inflation anxieties. The effective closure of the Strait of Hormuz, through which a fifth of the world’s oil passes, had pushed energy costs higher and fuelled expectations that central banks would keep interest rates elevated for longer, rendering non-yielding gold less attractive. From the onset of the war, bullion had shed roughly a fifth of its value. Monday’s breakthrough, therefore, not only halts that slide but underscores how swiftly geopolitical risk premia can evaporate when a path to de-escalation appears.

Oil markets bore the brunt of the reversal, with crude prices tumbling more than four per cent. The US dollar simultaneously dropped to a ten-day low against a basket of currencies, making dollar-denominated gold cheaper for buyers holding other tender. Analysts in London described a virtuous circle for bullion: cheaper oil cools inflation expectations, weaker greenback lowers the entry barrier for international investors, and reduced geopolitical uncertainty paradoxically eases the haven bid for cash, redirecting flows into the metal. “Lower oil and a softer dollar, born of diminished geopolitical risk, are helping to calm inflation fears,” noted Tim Waterer, chief market analyst at KMC Trade.

Viewed from Washington, the accord offers a potential exit from an increasingly costly entanglement, while from Tehran the promise of an end to the economic siege and the resumption of oil exports through Hormuz represents a significant strategic relief. The prominent role of Pakistan as a mediator and the choice of Switzerland for the signing ceremony reflect a multilateral effort to cement the truce, lending it a diplomatic weight that markets have initially welcomed. Yet seasoned observers counsel patience. The framework’s details remain opaque, and the history of US-Iranian brinkmanship is littered with unravelled agreements.

Looking ahead, gold’s trajectory will hinge on the Friday signing and initial implementation steps. If the Strait reopens and oil continues to deflate, the metal may find sustained support as real yields retreat from their war-era peaks. However, any snag in the peace process could swiftly revive the inflation hedging that had punished gold for months, making the coming days a critical juncture not just for geopolitics but for the asset class itself.