Gold struggles to hold gains amid mixed US-Iran headlines, hawkish Fed

LONDON (August 3) Gold (XAU/USD) starts the week on a positive note, although buyers lack conviction as markets weigh conflicting US-Iran headlines and look ahead to US employment data for fresh clues on the Federal Reserve’s (Fed) policy outlook.

At the time of writing, XAU/USD trades around $4,050, up 0.20% on the day, after reaching an intraday high of $4,084.

US President Donald Trump said over the weekend that he had called off a planned strike on Iran, with negotiations expected to begin on Monday. The announcement lifted hopes of a peace deal and sent Oil prices sharply lower, with West Texas Intermediate (WTI) down more than 7% at the time of writing.

The pullback in Oil prices eases immediate inflation concerns and pulls US Treasury yields lower, offering support to Gold. However, supply disruptions through the Strait of Hormuz keep Oil prices above pre-war levels.

Iranian Foreign Ministry spokesperson Esmaeil Baghaei also said Tehran is not currently holding talks with Washington, keeping traders sceptical about the chances of a deal and the full reopening of the Strait.

As a result, broader inflation concerns remain alive, and traders still see a high likelihood of the Fed raising interest rates this year. New York Fed President John Williams said on Monday that “rate policy is still well positioned to reach 2% inflation,” adding that “if inflation is not on track to 2%, the Fed will intervene to restore price stability.”

The CME FedWatch Tool shows that traders see a 65% chance of a rate hike in September. These hawkish bets continue to cap Gold’s upside despite broad weakness in the US Dollar (USD), driven by intervention from Japanese authorities to support the Yen.

On the US economic calendar, the ISM Manufacturing Purchasing Managers’ Index (PMI) is due later on Monday, followed by the JOLTS Job Openings report on Tuesday, ADP Employment Change on Wednesday and Nonfarm Payrolls (NFP) on Friday.

FXStreet