Gold slumps to near $4,050 as US-Iran talks uncertainty triggers inflation fears

Gold price tumbles to near $4,060 in Monday’s early European session.
US and Iran to ‘stand down for now,’ a US official said.
All eyes will be on the US Nonfarm Payrolls data later on Thursday.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) remains under selling pressure around $4,060 during the early European trading hours on Monday. The precious metal falls amid uncertainty surrounding US-Iran talks and hawkish Federal Reserve (Fed) expectations. The US Nonfarm Payrolls (NFP) data will take center stage later on Thursday.

The United States (US) and Iran agreed to halt attacks and plan to meet in Doha, Qatar, on Tuesday to resolve their dispute over the Strait of Hormuz, Axios reported. US officials stated that Washington and Tehran “will stand down for now” following an exchange of fire near the critical waterway over the last several days.

However, uncertainty remains high as Iran’s Foreign Minister Abbas Araghchi said that responsibility for the Strait of Hormuz lies solely with Tehran. An Iranian official warned that any attempt to bypass its preferred route in the waterway will cause “tension and escalation.”

Any signs of rising tensions in the Middle East could raise inflation worries, prompting traders to raise their bets on rate hikes and weighing on the non-yielding bullion. 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.

Traders are now pricing in nearly a 59.7% probability of a rate hike as early as September 2026, according to the CME FedWatch Tool. The upcoming NFP and labor market reports on Thursday will offer some hints about the US interest rate path. Economists forecast an increase of 114,000 jobs in June and the Unemployment Rate holding steady at 4.3% during the same period.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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