Gold (XAU/USD) opened the week with a bearish gap, trading around $4,670 and down nearly 1% on the day after reaching an intraday high near $4,705 [1]. The decline in gold prices is attributed to persistent uncertainty surrounding the US-Iran war, which continues to fuel oil-driven inflation fears and maintains pressure on central banks to keep borrowing costs elevated [1]. Hopes for a near-term peace deal faded after US President Donald Trump rejected Iran’s response to a US-backed proposal aimed at ending the war, calling it 'totally unacceptable' on Truth Social [1]. Iranian state media reported that Tehran’s proposal included demands for US compensation for war damages and emphasized Iran’s sovereignty over the Strait of Hormuz [1]. Despite ongoing diplomatic efforts, talks remain unresolved over Iran’s nuclear program, raising uncertainty over the duration of the US-Iran war and heightening fears of prolonged supply disruptions through the Strait of Hormuz, which keeps a geopolitical risk premium embedded in oil prices [1].
Soaring oil prices are reinforcing expectations that major central banks, particularly the Federal Reserve, may have to keep interest rates higher for longer and could even consider raising rates again if inflation pressure intensifies [1]. According to the CME FedWatch Tool, traders largely expect the Fed to keep borrowing costs unchanged for the rest of the year, though markets are pricing in a small chance of a rate hike at the December meeting, with the probability standing around 20% [1]. In this environment, gold’s upside remains capped as higher interest rates reduce the appeal of non-yielding assets like gold, prompting investors to shift toward interest-bearing assets such as government bonds and other fixed-income instruments [1].
Investors are now awaiting the upcoming US Consumer Price Index (CPI) data due on Tuesday, which could influence expectations for the Fed’s monetary policy path [1]. Despite the bearish sentiment, downside pressure on gold remains limited as ongoing geopolitical uncertainty supports safe-haven demand, and steady central bank, retail, and investment buying continues to provide underlying support for the precious metal [1].
CONCLUSION
Gold prices have come under pressure due to expectations of prolonged higher interest rates and ongoing geopolitical tensions, particularly between the US and Iran. While the upside for gold remains capped, safe-haven demand and continued buying provide some support, leaving the market in a cautious stance ahead of key US inflation data.