Gold pares gains as conflicting U.S.-Iran signals cloud outlook

Gold prices inched lower on Monday, as conflicting reports over a potential U.S.-Iran diplomatic breakthrough tempered gold’s early gains on Monday, as traders remained cautious ahead of key U.S. employment data. 

Bullion erased part of its early advance, retreating from an intraday high near $4,084. By 09:31 ET (13:31 GMT), spot gold had slipped by 0.3% to $4,030.21 an ounce, and gold futures were down by 0.5% to $4,085.95 an ounce.

Sentiment shifted after President Donald Trump said he had called off a planned strike on Iran and that negotiations were set to begin Monday. However, Iran’s Foreign Ministry said no talks with Washington were currently underway, fueling uncertainty over the prospects for a deal and the full reopening of the Strait of Hormuz.

U.S. President Donald Trump had said renewed negotiations with Iran on reopening the Strait of Hormuz and Tehran’s nuclear ambitions were set to begin this week, but declined to provide a deadline for a deal to be secured.

Last week, the Federal Reserve left interest rates unchanged, although three officials dissented, warning that delaying action for too long could eventually require more aggressive policy tightening, with markets currently pricing in about a 68% chance of a 25 basis point Fed rate hike in September.

This hawkish undertone continues to act as a structural ceiling for gold. On the daily chart, XAU/USD maintains a bearish near-term tone as spot holds below all major moving averages, with the 50-day, 100-day, and 200-day SMAs lining up as layered resistance overhead, suggesting rallies remain capped for now.

Elevated interest rates could bode poorly for non-yielding assets like gold.

Elsewhere, the U.S. dollar weakened modestly, dipping to its lowest level since mid-June, after media reports said authorities had intervened in currency markets to support the Japanese yen.

"Lower oil prices should also be weighing on the dollar on reports from [...] Trump that negotiation, rather than military firepower, is Washington’s preferred method of engaging with Iran," analysts at ING said in a note.

Traders are now looking ahead to the release of key economic data this week, including the U.S. jobs report for July as well as trackers of factory and services sector activity.