Gold climbs as weaker dollar and easing oil prices boost demand

Gold advanced on Thursday as a weaker dollar and easing oil prices supported demand for bullion, while investors weighed renewed optimism over a possible resolution to the US-Israeli war with Iran.

Spot gold rose 0.7% to $4,461.09 an ounce as of 0218 GMT. US August gold futures gained 0.5% to $4,487.90.

The move came as the dollar softened, making bullion priced in the greenback cheaper for buyers using other currencies.

Oil prices also eased in early trading, helping temper concerns about inflationary pressure from the conflict.

For gold, the combination was supportive.

A weaker dollar tends to lift demand for the metal, while lower oil prices can reduce inflation concerns and ease pressure on non-yielding assets.

Dollar and oil drive gold’s move

Gold’s latest rise was closely tied to moves in the dollar and oil, rather than a broad shift in investor positioning.

“Gold's gains are still very much at the mercy of oil and the dollar. It only moves higher when they pull back, making it highly dependent on positive US-Iran headlines for any sustained momentum,” Tim Waterer, chief market analyst at KCM Trade, said in comments cited by Reuters.

That dynamic has left bullion sensitive to every change in the geopolitical narrative.

If oil prices continue to ease and the dollar remains under pressure, gold may find near-term support. But any reversal in either market could quickly cap gains.

Oil slipped in early trading on Thursday as geopolitical tensions appeared to cool. Lower oil prices can help ease inflation expectations, which matters for gold because the metal pays no interest and often struggles when real yields rise.

Ceasefire hopes lift sentiment

The geopolitical backdrop remained central to market sentiment.

Israel and Lebanon agreed to implement a ceasefire to end hostilities, the Trump administration said on Wednesday.

The move lifted hopes that a wider deal could eventually help end the Iran conflict.

The development gave investors some reason to reduce the immediate risk premium attached to oil, while still keeping demand for gold intact as uncertainty remained elevated.

In Washington, the Republican-led US House of Representatives approved a resolution on Wednesday to block President Donald Trump from continuing the war against Iran.

The resolution underlined the political pressure building around the war, though investors are likely to watch whether it has any practical impact on US policy.

Fed signals steady policy

Monetary policy also remained in focus after comments from New York Federal Reserve President John Williams.

Williams said he does not expect war-related inflation risks to be long-lasting and repeated that there was no need at this time to change US monetary policy, according to Reuters.

That message helped frame the market’s view of gold.

The metal is often treated as an inflation hedge, but higher interest rates can weigh on prices by raising the opportunity cost of holding a non-yielding asset.

If the Federal Reserve remains patient and avoids signalling a fresh tightening bias, gold could retain support.

However, any sign that inflation risks are becoming more persistent may revive expectations of tighter policy and put pressure on bullion.

Analysts expect choppy trade

Some analysts said gold’s broader uptrend may not be over, but warned that the market could remain volatile.

“I don't think we've seen the end of the bull run, but it is clearly time for a shakeout in general. So I anticipate choppy trade as we head into the year end, with a slight upwards bias of around $5,000,” Matt Simpson, senior analyst at StoneX, told Reuters.

That view reflects the competing forces currently shaping the market. On one side, geopolitical uncertainty, a softer dollar and lower oil prices can support gold.

On the other, steady Fed policy and the risk of higher real yields may limit the pace of gains.