Gold scales one-month peak as US-Iran peace hopes ease inflation worries

Gold rose more than 2% on Wednesday to a one-month high as hopes of a U.S.-Iran peace deal tempered some inflation concerns, while investors awaited key U.S. jobs data for clues on the Federal Reserve's policy path.

Spot gold XAU= climbed 2.3% to $4,168.34 per ounce by 1113 GMT, its highest level since July 7. U.S. gold futures GCcv1 rose 1.8% to $4,227.40.

U.S. President Donald Trump said his administration had "very good discussions" with Iran during all-day negotiations on Tuesday, fuelling expectations of an imminent end to the five-month conflict.

"There are increasing signs of a Gulf ceasefire deal, which means Treasury yields are moving lower on easing inflation worries, which helps make non-yielding assets like gold more attractive," said Jamie Dutta, a market analyst at trading platform Nemo.money.

The U.S. dollar remained under pressure, making greenback-priced metals more attractive to holders of other currencies, while yields on the benchmark 10-year U.S. Treasury note US10YT=RR fell to a one-week low.

Gold tends to lose its appeal in a high interest-rate environment despite its status as an inflation hedge, as it yields no interest.

Traders are now pricing in a 57% probability of a September rate hike, down from 67% a day earlier, according to the CME FedWatch Tool.

Meanwhile, Federal Reserve Bank of Kansas City President Jeff Schmid said on Tuesday that some sort of monetary policy tightening is needed to get "too high" inflation back to the 2% target.

"Concerns about the Fed's credibility will probably ease as the central bank raises interest rates over the coming months. That would result in gold prices falling and settling below $4,000 per ounce before the end of this year," said Hamad Hussain, a climate and commodities economist at Capital Economics.