Gold Holds Decline as Trump Issues Fresh Iran Threat Amid Peace Talks

Gold prices held their decline following a fresh threat issued by US President Donald Trump against Iran. These renewed threats, coming amidst high-level peace talks, have heightened tensions in global markets. The precious metal continued its descent for a third consecutive session, trading near $4,160 an ounce.

Trump's weekend threat to strike Hezbollah if it continued attacking Israel raised concerns about progress in peace talks between Washington and Tehran. Although Iranian media reported that Tehran halted talks in response to Trump's warning, sources familiar with the matter indicated that discussions continued into the early hours of Monday in Switzerland. A preliminary memorandum of understanding, signed last week, initiated a de-escalation process and opened a 60-day window for further negotiations.

Since the conflict in the Middle East began in late February, gold prices have fallen by more than a fifth. The near-closure of the Strait of Hormuz has disrupted the flow of oil and natural gas, pushing up energy prices. This situation has increased the likelihood of central banks hiking borrowing costs to combat inflation, posing a significant headwind for non-yielding precious metals.

Federal Reserve (Fed) Chairman Kevin Warsh's hawkish stance on inflation during his inaugural policy meeting last week, while not providing a clear signal on the future path of interest rates, significantly impacted markets. Elevated oil prices fueling rising inflation expectations reduce the probability of near-term Fed rate cuts, keeping real interest rates higher for longer. This naturally pressures non-yielding assets like gold. Furthermore, geopolitical uncertainty drives additional safe-haven demand for dollar liquidity, strengthening the US dollar.

Analysts and market expectations suggest that the gold market will increasingly track macroeconomic signals rather than solely geopolitical developments. Goldman Sachs has revised its gold price target for December down to $4,900 per ounce from its previous forecast of $5,400, as the bank no longer anticipates US rate cuts this year. Investors will closely monitor the US personal consumption expenditures (PCE) price index data, due on Thursday, which is expected to show an acceleration.