Gold Under Pressure Near $4,060 on Fed, Geopolitical Risks

Key Moments

Gold Retreats as Markets Track US-Iran Developments

Gold prices are sliding toward $4,060 in early European trade on Monday as investors respond to a combination of geopolitical risk and expectations for a hawkish Federal Reserve. The move lower in XAU/USD comes ahead of this week’s US labor market data, with traders trimming exposure to the non-yielding metal.

According to a report, the United States and Iran have agreed to pause attacks and intend to hold talks in Doha, Qatar, on Tuesday to address their dispute over the Strait of Hormuz. A US official indicated that Washington and Tehran “will stand down for now” following an exchange of fire near the strategically important waterway over recent days.

Strait of Hormuz Tension Keeps Inflation Fears Elevated

Despite the planned meeting, the situation remains fragile. Iran’s Foreign Minister Abbas Araghchi stated that responsibility for the Strait of Hormuz rests exclusively with Tehran. An Iranian official cautioned that any effort to circumvent its preferred route through the waterway would trigger “tension and escalation.”

Markets are sensitive to any signs of renewed stress in the Middle East, as disruptions in this region can amplify inflation concerns. Heightened inflation risk tends to reinforce expectations for tighter monetary policy, which in turn can pressure gold, given that the metal does not provide income and must compete with higher-yielding assets when interest rates rise.

Rate-Hike Odds Firm as Investors Await US Jobs Data

Positioning in interest rate futures reflects a growing conviction that the Federal Reserve may tighten policy further. Traders are currently assigning a 59.7% probability to a rate increase as early as September 2026, based on the CME FedWatch Tool.

The upcoming release of US Nonfarm Payrolls and labor market indicators on Thursday is expected to be a key input for the Fed’s rate outlook. Economists are projecting a gain of 114,000 jobs in June, with the Unemployment Rate forecast to remain unchanged at 4.3%.

How the Federal Reserve Shapes the US Dollar and Markets

Monetary policy in the United States is determined by the Federal Reserve, which is tasked with achieving price stability and maximum employment. The main instrument used to pursue these objectives is the adjustment of interest rates.

When inflation runs above the Fed’s 2% target and prices are rising rapidly, the central bank responds by lifting interest rates. Higher borrowing costs tend to support the US Dollar, as they can make USD-denominated assets more appealing to global investors.

Conversely, when inflation is below target or the Unemployment Rate is elevated, the Fed can cut interest rates to stimulate borrowing and economic activity, a dynamic that generally weighs on the Greenback.

Fed Meetings and Policy Framework

The Federal Reserve conducts eight monetary policy meetings each year. At these gatherings, the Federal Open Market Committee (FOMC) evaluates economic conditions and sets policy. The FOMC is composed of twelve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who rotate through one-year voting terms.

Quantitative Easing and Quantitative Tightening Explained

In times of severe financial stress or very low inflation, the Fed can deploy Quantitative Easing (QE). Under QE, the central bank significantly increases the supply of credit in a stalled financial system. This involves creating additional US Dollars and using them to purchase high-grade bonds from financial institutions. Such actions are typically associated with a weaker US Dollar.

Quantitative Tightening (QT) is the opposite approach. Under QT, the Fed stops buying bonds and allows the securities on its balance sheet to mature without reinvesting the principal in new assets. This process usually supports the value of the US Dollar.