Gold prices rocketed closer to the $5,000 level today after Iran said the Strait of Hormuz was now “completely open” for shipping.
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Inflation Fears Ease
The subsequent drop in oil prices and the hopes that a peace deal between the U.S. and Iran was moving closer helped make the precious metal more attractive.
The spot gold price was up 1.50% at $4,861 in late trading.
That is mainly down to the hope that inflation may now be tempered and that interest rates will not have to rise as a result. A weaker U.S. dollar also helped golden sentiment.
That’s because gold tends to perform better in times of lower interest rates and when the U.S. currency is struggling.
Gold is still down around 8% from the level – well above $5,000 – that it reached before the Iran war. That was driven by gold’s traditional status as a safe haven during times of political and economic crises as well as demand from central banks.
Safe Haven Risk?
That status as a safe haven is under threat given gold’s troubles during the conflict, which arguably had the potential to be one of the worst geopolitical crises in years. So, given the fragility which will remain in the Middle East after the peace deal and the impact that will have on oil prices and economic hopes, it is still uncertain whether gold can reclaim its former heights.
Nicky Shiels, head of metals strategy at MKS PAMP SA, is optimistic. ”Gold has been trading inversely with oil and the dollar while positively correlating with risk assets since the start of the war. So, any peace-related headline will inject upside momentum,” Shiels said.
Some analysts still believe gold can reach the $6,000 mark by the end of this year. Union Bancaire Privée said recently that it is back buying gold again after cutting its holdings in response to the Iran war.
The Swiss private bank is adding bullion, mainly in the form of ETFs to client portfolios. It said that it still sees structural demand for gold, including central bank buying, concerns about fiscal deficits and geopolitical tensions.
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