Gold weakens on US-Iran de-escalation, expectations of Fed tightening

Gold falls nearly 1% after signs of de-escalation between the United States and Iran.
Markets remain cautious ahead of US-Iran talks in Doha on Tuesday and US labor market data later this week.
Expectations for a restrictive monetary policy continue to weigh on the appeal of the precious metal.

Ghiles Guezout FXStreet

Gold (XAU/USD) trades around $4,050 at the time of writing on Monday, down 0.96% on the day, as investors slightly reduce their exposure to safe-haven assets following the latest developments surrounding tensions between the United States (US) and Iran.

After an exchange of strikes near the Strait of Hormuz over the weekend, a US official said on Sunday that Washington and Tehran would stand down on attacks to allow vessels to move freely. According to Axios, both sides are set to resume negotiations in Doha on Tuesday to continue discussions on all areas covered by their Memorandum of Understanding.

According to Reuters, Iranian President Masoud Pezeshkian said, citing the state news agency IRNA, that $6 billion of the $12 billion in Iranian assets frozen in Qatar should be released. The move could be viewed as a confidence-building measure ahead of the next round of US-Iran talks in Doha.

Despite this easing in tensions, markets remain cautious. Iran's Foreign Minister Abbas Araghchi reiterated that responsibility for the Strait of Hormuz lies solely with Tehran and warned that any attempt to bypass Iran's preferred route could trigger renewed tensions. The Strait of Hormuz remains a strategic chokepoint for nearly 20% of global energy flows, keeping investors alert to any risk of supply disruptions.

At the same time, traders continue to assess the monetary policy outlook of the Federal Reserve (Fed). Higher energy prices driven by geopolitical tensions continue to fuel inflation concerns, supporting expectations that interest rates could remain elevated for longer and reducing the appeal of non-yielding assets such as Gold.

According to the CME FedWatch tool, markets are now pricing in roughly a 48% chance of a rate hike as early as September. Attention now turns to the June US labor market report, with the Nonfarm Payrolls (NFP) release due on Thursday. Economists expect the US economy to have added 114K jobs while the Unemployment Rate is forecast to remain unchanged at 4.3%, data that could influence expectations for the Fed's policy path.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Author

Ghiles Guezout

FXStreet

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

AUD/USD hits eight-month lows below 0.6850 amid bullish USD

AUD/USD stays defensive below 0.6850, hitting an eight-month low in the Asian session on Thursday as the possibility of a steeper Fed rate hike in December helps the US Dollar hold near its highest level since April 2025. Geopolitical uncertainty also supports the safe-haven buck, while the RBA’s cautious, on-hold stance limits the Aussie.

USD/JPY eases from near 160.00 amid looming intervention risks, BoJ hike bets

USD/JPY retreats slightly from an over two-month high as the recent surge back to the 160.00 psychological mark prompted verbal warnings from Japanese authorities and sparked fears of direct FX intervention. Moreover, data showed that Japan’s wholesale inflation picked up again in October, strengthening the case for a BoJ hike in December and lifting the Japanese Yen. However, a bullish US Dollar, bolstered by odds of a jumbo Fed rate hike in December, could cap the pair's downside.

Gold rebounds loses steam at $4,000 as hawkish Fed bets support USD

Gold's rebound falters at $4,000 in the Asian session on Thursday. The US Dollar regains traction and sits at its highest level since April 2025, weighing on the commodity. Fed rate hike expectations and the possibility of a jumbo 50 bps rate increase favor USD bulls, keeping the non-yielding bullion capped at $4,000.

Why the US Dollar's rally isn't as strong as it looks

The US Dollar Index (DXY) is back at an 18-month high, but most of its climb since August is the Euro (EUR) falling. Against a wider group of trading partners, the Dollar has gained half as much, and the Federal Reserve (Fed) has raised rates once this year. The US Dollar Index, which measures the Dollar against six other currencies, is trading near 103.

UK GDP is set to show that the economy continued growing in Q3

The highlight of the United Kingdom’s economic calendar this week will be the preliminary estimate of third-quarter Gross Domestic Product, which the Office for National Statistics will release on Thursday. The market is bracing for 0.7% growth in the three months to September, following 0.5% growth in the second quarter of 2026, with the annual rate accelerating to 1.9%, from 1.4% in the previous month.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.