Spot gold prices posted their strongest single-day advance since February, closing at their highest level in seven weeks.
The precious metal jumped 4.39% to $4,257.02 an ounce, reaching its highest level since mid-June, as markets reacted to growing expectations of a diplomatic agreement regarding the Strait of Hormuz.
The previous week had seen spot gold hit a one-week high at $4,063 on weak jobs data, but the subsequent slide to a seven-month low underscored the dominance of rate-hike fears.
The rally was driven by growing market optimism that a diplomatic breakthrough could soon ease tensions in the critical shipping chokepoint.
Prospects for a deal to reopen the Strait reduced expectations for Federal Reserve rate hikes, providing a dual tailwind for the non-yielding asset.
A break above a key technical resistance level further fueled buying interest, signaling a potential shift in momentum after weeks of selling pressure.
This sharp reversal marks a significant pivot from recent trends.
Just days earlier, gold was on track for its worst quarterly drop since 2013 and its steepest monthly fall since 2008, weighed down by rising US yields and a hawkish Fed outlook. The previous week had seen spot gold hit a one-week high at $4,063 on weak jobs data, but the subsequent slide to a seven-month low underscored the dominance of rate-hike fears.
The current move suggests that geopolitical risk premiums are being recalibrated.