Gold prices rose after US President Donald Trump said new negotiations with Iran would begin later on Monday, boosting hopes for a breakthrough in the months-long conflict that would ease inflation driven by soaring energy prices.
Gold traded near $4,070 an ounce, after ending July up 1%, its first monthly gain since February.
Trump said on Sunday that he called off a massive attack on Iran after Middle Eastern allies, including Saudi Arabia, urged him to pursue a deal instead. Brent crude, the international benchmark, fell by more than 7%.
Gold traders are also closely watching the Federal Reserve's next steps, after The New York Times reported that Fed Chairman Kevin Warsh said he was considering slowing the pace of monetary policy meetings.
Any cut would represent a major shift for the US Federal Reserve, which currently meets eight times a year and voted last Wednesday by a majority of 9 to 3 to keep interest rates unchanged.
Pressure on the Federal Reserve to reduce inflation
Investors criticized Warsh's attempts to limit guidance given to markets on the direction of interest rates, as the Federal Reserve faces increasing pressure to do more to curb inflation.
The three officials who opposed the decision last week warned that waiting too long before acting could entail the risk of needing to take more stringent steps in monetary policy later.
Samantha Dart, associate director of global commodities research at Goldman Sachs, told Bloomberg: “Things have become somewhat more supportive for gold following the Federal Reserve meeting.” She added that concerns about rising interest rates increase the opportunity cost of holding gold, prompting investors to reduce their holdings. She continued: “But tactically, we’re not completely out of the woods yet.”
Gold has fallen by more than a fifth since the outbreak of war between the United States and Iran more than five months ago, as high energy prices have fueled inflationary pressures and raised the prospect of interest rates remaining high for longer, a factor that is counterproductive for precious metals that do not pay interest.
Gold received a second boost and is consolidating after Trump postponed strikes on Iran over the weekend and following a relatively hawkish tone from the Federal Reserve last week, according to a note by Ahmad Assiri, market strategist at Pepperstone Group Ltd.
He said: Yields continue to rise gradually, putting limited pressure on gold's appeal, but this correlation remains relatively mild. He added: Unrest related to Iran is likely to push the metal lower during the week if regional diplomacy does not yield a positive outcome.
Spot gold rose 0.5% to $4,068.07 an ounce by 2:10 p.m. in Singapore. Silver climbed 1% to $58.14 an ounce. Platinum gained 0.6%, and palladium rose 1.1%, while the Bloomberg Dollar Index, a measure of the U.S. currency's performance, fell 0.3%.
