Gold price (XAU/USD) declines to near $4,050 during the early Asian session on Tuesday. The precious metal eased slightly from the recent rally after the US paused planned airstrikes against Iran. Traders will closely monitor the developments surrounding US-Iran talks for fresh impetus.
Bloomberg reported on Monday that US President Donald Trump said his latest offer of talks is a “last chance” for Iran after he called off what he said was a major attack on the Islamic Republic. Trump said he expected negotiations to begin in the next day or two to reopen the Strait of Hormuz and create a pathway for Iran to address the US’s concerns about its nuclear programme.
Iran denied it was negotiating with the US but said talks with Oman to get more ships moving through the critical waterway are making progress.
Uncertainty in the Middle East remains high despite hopes of a breakthrough between the US and Iran. Any signs of escalating tensions between the US and Iran could push crude oil prices up and prompt central banks to hold rates at elevated levels for longer. It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
The US Federal Reserve (Fed) decided to hold the interest rates steady in its current target range between 3.50% and 3.75% at its July policy meeting last week. During the press conference, Fed Chair Kevin Warsh pledged an unwavering commitment to bring inflation down. Traders await the US jobs data on Friday for more clues about the US interest rate path.
Gold upside seen capped by lingering Fed hike expectations
According to analysts at Commerzbank, the outlook for bullion remains constrained by the policy path in the US. They argue that “the persistent expectation of Fed interest rate rises should counteract any rise in the gold price,” with ongoing speculation about further tightening limiting investors’ willingness to chase the recent rally.
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