Gold marginally lower amid firmer dollar as U.S.-Iran tensions escalate further

Gold prices were slightly lower on Monday, as the dollar strengthened after tensions in the Middle East showed no signs of abating. Washington kept up a bombardment against Iran for a tenth straight day, while President Donald Trump said Tehran would ’pay’ for the killing of three U.S. service members. 

The war will likely be a major driver for bullion this week amid a dearth of economic data and the Federal Reserve’s communications blackout. Monetary policy cues had been in the spotlight last week, after positive inflation data had led to a paring of near-term interest rate hike expectations.

At 16:38 ET (20:38 GMT), spot gold shed 0.2% to $4,008.88/oz, while gold futures lost 0.1% to $4,013.22/oz. Bullion declined more than 2% last week.

U.S.-Iran situation deteriorates further

Washington and Tehran ramped up their rhetoric against each other amid continued fighting. The U.S. military has now pounded Iran for 10 consecutive days with strikes, prompting attacks from the country on critical infrastructure sites across the Gulf region.

On Sunday, U.S. Central Command said three service members had been killed by Iranian attacks.

"Every time Iran kills an American Soldier they will pay for that killing many times over! This directive has been passed on to Secretary of War, Pete Hegseth, Chairman of the Joint Chiefs of Staff, Daniel Caine, and every Leader in the Military," President Donald Trump posted on his Truth Social service on Monday.

The escalation in tensions this month represents the biggest breakdown in relations since the U.S. and Iran inked an interim peace agreement in mid-June. Iran’s Fars News Agency over the weekend reported that Tehran had officially suspended its commitments under the peace deal, citing Kazem Gharibabadi, the country’s deputy foreign minister for legal and international affairs.

Iran’s state media on Monday reported that President Masoud Pezeshkian told a session of the Supreme Judicial Council that Tehran was now engaged in a "full-scale war" with the U.S. that extended well beyond missile strikes.

Control over the Strait of Hormuz remains a key sticking point, with Iran repeatedly asserting its right over the vital waterway.

There was still a glimmer of hope for a diplomatic resolution. Secretary of State Macro Rubio on Sunday said that the U.S. was open to holding talks with Iran, noting that Washington would be "happy" should the opportunity to pursue more discussions arise.

Against this backdrop, oil prices ticked up on Monday, extending an advance of more than 16% from last week.

"Gold no longer acts as a safe-haven in times of geopolitical uncertainty. Instead, that role is currently taken by the U.S. dollar. And unfortunately for the gold bulls, a strong negative correlation between the U.S. dollar and gold has built up ever since gold peaked to fresh all-time highs at the end of January, before its price collapsed," David Morrison, senior market analyst at Trade Nation, said.