Gold recovers above $4,050 as Trump pauses Iran strikes

Gold price (XAU/USD) sees a recovery above $4,050 during the early Asian session on Monday, as traders hold out hope for a breakthrough in talks between the United States and Iran. President Donald Trump temporarily halted Iran strikes following what he claimed was a rapid agreement on Iran's nuclear program and the full reopening of the Strait of Hormuz.

US President paused the strikes in anticipation of a breakthrough and in response to requests from Tehran and other regional countries. Despite reports that Iranian officials dismissed Trump's claim as a "new lie," and that Iranian forces remained on high alert, traders closely monitor US-Iran developments as any progress could provide support to the precious metal.

However, tensions in the Middle East could potentially cap the upside for gold, pushing crude oil prices up and prompting central banks to maintain elevated interest rates for longer. This could make gold less attractive as a hedge against inflation, as it does not yield interest, unlike other assets. Central banks, the largest holders of gold, added 1,136 tonnes worth around $70 billion to their reserves in 2022, the highest yearly purchase since records began.

This increase in gold reserves is seen as a sign of trust in a country's solvency. Geopolitical instability or concerns of a deep recession can trigger a rise in gold prices, due to its status as a safe haven asset. As gold is priced in US dollars, a weaker dollar is likely to push gold prices up. With the Fed decision and an awaited NFP report, employment data from Canada and New Zealand, and Chinese trade and Japanese wage data, gold's future movements remain heavily dependent on the US Dollar's performance.