Gold prices dip after U.S.-Iran talks stall; all eyes on this week’s Fed decision

Gold prices dipped on Monday, as investors were cautious following a diplomatic setback between the U.S. and Iran and ahead of a key Federal Reserve interest rate decision later this week.

At 15:45 ET (19:45 GMT), spot gold was down 0.6% to $4,681.39/oz, while gold futures fell 1% to $4,694.61/oz.

Traders eye what could be last Fed decision under Powell 

Much of the focus this week is on the Fed’s latest rate decision on Wednesday following a two-day gathering. The central bank is widely expected to leave interest rates unchanged, meaning investors will be paying close attention to how the Fed sees economic outlook evolving in the wake of an energy shock sparked by the Iran war. 

This week’s meeting is also anticipated to be the last under Fed Chair Jerome Powell, whose term ends on May 15. Kevin Warsh, Trump’s nominee to replace Powell, testified before Congress last week that he had made no commitments to cut interest rates. 

Non-yielding gold tends to outperform in lower interest rate environments.

"With policy ’well positioned’ to address risks to the outlook, the Fed is set to extend its pause at the April FOMC meeting. The key question is whether they formally adopt two-sided language about the policy outlook in the statement and/or Powell indicates a more balanced risk assessment in the press conference. Our base case is they will wait until the June meeting for meaningful changes to guidance, but the risk is that communications skew more hawkish," Deutsche Bank analysts led by Matthew Luzzetti said in a preview note on Friday.

"The impact of the ongoing conflict in the Middle East will be the focus of Powell’s presser. With uncertainty still pervasive, we expect he will emphasize that officials are unsure of the precise fallout from the war on the economy and monetary policy. However, Powell could highlight that persistent price pressures become more likely the longer oil prices remain elevated," the analysts said.

U.S.-Iran talks stall, Tehran offers up new proposal  

Plans for more U.S.-Iran talks fell through over the weekend after Iranian officials left Pakistan, while Washington canceled plans to send a delegation to Islamabad. 

President Donald Trump said Tehran could call him if it wanted to talk, and reiterated his stance that Iran could not have a nuclear weapon. Corralling Iran’s nuclear ambitions has been cited as a major motivator of the joint U.S.-Israeli assault. 

Traders looked past the setback in the weekend talks, however, after media reports said that Iran had offered a new proposal to the U.S. under which it was offering to drop its effective closure of the critical Strait of Hormuz without addressing its nuclear ambitions. Axios, the Associated Press, and the Wall Street Journal reported about the offer. 

Meanwhile, CNN reported that Trump was planning to meet his top national security officials on Monday to discuss the stalemate in talks with Iran, citing two sources familiar with the matter. 

White House Press Secretary Karoline Leavitt confirmed to reporters that Trump had indeed met his national security team in the morning and that Iran’s proposal had been discussed. Leavitt added that she wouldn’t say the proposal was being considered, just that it was discussed.

Tensions remain elevated amid an ongoing U.S. naval blockade of Iranian ports and coastline, and Tehran’s continued closure of the critical Strait of Hormuz. The shuttering of the strait has sent oil prices soaring well above pre-war levels, sparking concerns over a surge in global inflation that could elicit a more hawkish policy tilt from central banks.  

Against this backdrop, investors turned to the U.S. dollar as a relative safe haven, especially in March, denting the appeal of dollar-denominated gold to overseas buyers. The dollar weakened slightly on Monday.