MARKET NEWS

(Bloomberg) -- Gold regained some ground after a two-day decline, as US President Donald Trump extended a ceasefire with Iran and allowed more time to arrange fresh peace talks.

Bullion rose as much as 1.1% before paring most of the gains during US hours. President Donald Trump indefinitely extended a ceasefire with Iran after the two sides failed to meet for more peace talks, with the war developing into a game of brinkmanship over the critical Strait of Hormuz. While that means the US-Israel alliance and Iran won’t immediately return to fighting a war that’s killed thousands of people and sent energy prices soaring, there’s still no sign the vital Hormuz waterway will be reopened to oil and liquefied natural gas shipments soon.

Oil edged higher on Wednesday, with Brent around $100 a barrel. A gauge of the dollar reversed a gain in the previous session to slip 0.2%, boosting gold, which is priced in the same currency.

Now in its eighth week, the war in the Middle East has triggered an unprecedented energy-supply shock that has heightened inflationary risks, making central banks more likely to hold interest rates steady or even raise them — a headwind for non-yielding bullion. Gold nosedived after the conflict began but has recovered somewhat in recent weeks.

The current positioning in gold is significantly cleaner than before, according to Darwei Kung, head of commodities and portfolio manager at DWS Group. “Up until the end of February, there was a substantial amount of speculative activity in gold, including highly leveraged trades.”

The market now appears to be driven more by fundamentals, which is why “we like gold at this point,” said Kung, adding that he increased his gold positioning after the initial selloff in the early days of the war and is now overweight gold in his portfolio. Still, “we’re very tactical, which means we trade in and out. We’re overweight right now, but we could easily not overweight as well,” said Kung.

“Gold ETF inflows have shown a consistent recovery over the last three weeks, allowing prices to continue their steady ascent since the March sell-off,” analysts at BMO Capital Markets wrote in a note Wednesday. Still, upward price momentum has slowed over the last week with signs that Asia may be selling once prices hit around the $4,850 mark, they said.