Gold Flat as Weaker Dollar Counters Easing Geopolitical Risks

Gold was little changed at around $4,030 an ounce on Monday as investors balanced support from a weaker US dollar against reduced safe-haven demand amid easing geopolitical tensions. Oil prices tumbled after optimism grew over a potential US-Iran agreement, reducing inflation concerns and expectations that interest rates will remain elevated for longer. US President Donald Trump said fresh talks with Iran would begin on Monday after holding off on a new attack, although Iran denied that negotiations with Washington were underway. Additional support came from a softer US dollar, which fell to its lowest level since mid-June after authorities intervened in the foreign exchange market to support the yen. Investors are now awaiting a series of US labor market reports, culminating in Friday's nonfarm payrolls release, for further clues on the Federal Reserve's policy path.

Gold climbed above $4,050 an ounce on Monday, recovering losses from the previous session after President Donald Trump said peace talks with Iran will resume today, sending oil prices lower and easing concerns over inflation and the interest rate outlook. Trump said key Middle Eastern allies, including Saudi Arabia, urged him to suspend planned strikes and pursue a diplomatic agreement instead, while reiterating his call for the swift reopening of the Strait of Hormuz. Investors also turned their focus to a packed week of US labor market data, highlighted by Friday’s closely watched monthly jobs report. Last week, the Federal Reserve left interest rates unchanged, although three officials dissented, warning that delaying action for too long could eventually require more aggressive policy tightening. Markets are currently pricing in about a 68% chance of a 25 basis point Fed rate hike in September.

Gold fell to around $4,040 an ounce on Friday as the dollar rebounded from a more than one-month low. Still, the metal gained about 0.5% in July, its first monthly increase since February, supported by softer US inflation data and the Federal Reserve's decision to keep interest rates unchanged. Gains were capped by expectations of tighter monetary policy, with markets pricing in about a 65% chance of a Fed rate hike in September. While Chair Kevin Warsh reaffirmed the Fed's commitment to lowering inflation without signaling an imminent hike, the three officials who dissented this week reiterated on Friday that further tightening is needed. Meanwhile, renewed US-Iran hostilities continued to cloud the outlook, with fresh US strikes on Iranian targets reducing hopes for a near-term diplomatic resolution. Since the conflict erupted in late February, higher oil prices have fueled inflation concerns and weighed on gold by strengthening expectations for higher interest rates.