Gold declines to near $4,050 on US–Iran talks uncertainty

Gold prices declined to near $4,050 during the early Asian session on Tuesday after the US paused planned airstrikes against Iran. Traders are closely monitoring the US-Iran talks for fresh impetus. Trump had called off a planned attack on Iran, stating it was a "last chance" for negotiations, aiming to reopen the Strait of Hormuz and address US concerns about Iran's nuclear program.

Iran denied being in talks with the US but mentioned progress with Oman in resolving shipping issues at the critical waterway. Despite hopes for a breakthrough, uncertainty in the Middle East remains high, with any escalation potentially increasing crude oil prices and central banks holding interest rates higher for longer. Gold is often used as a hedge against inflation, but its attractiveness decreases when interest rates are high.

The US Federal Reserve decided to maintain interest rates steady at 3.50%-3.75% during the July policy meeting, with Fed Chair Kevin Warsh pledging commitment to bring inflation down. Analysts at Commerzbank argue that the expectation of Fed interest rate rises will counteract any rise in gold prices, limiting investors' willingness to chase recent gains.

Gold, as a store of value and safe-haven asset, is widely held by central banks, which aim to support their currencies during turbulent times. Central banks increased their gold reserves by 1,136 tonnes worth around $70 billion in 2022, the highest yearly purchase since records began. The price of gold is influenced by various factors, including geopolitical instability, recession fears, the US Dollar, and risk assets. A stronger Dollar typically controls gold prices, while a weaker Dollar pushes prices up.