Gold hits highest in three months on softer dollar and geopolitical uncertainty

Gold prices reached their highest in nearly three months on Monday due to a combination of a weaker dollar and increasing geopolitical tensions. Spot gold increased by 0.66% to $4,646.52 per ounce, building on a 5% gain from the previous week. The US dollar has been at a multi-month low after the US announced an increase in its bond buyback program.

According to Naeem Aslam, chief investment officer at Zaye Capital Markets, the current gold market is influenced by multiple forces rather than a single catalyst. Trump's warnings of military intervention, his comments on US control around the Strait of Hormuz, and ongoing trade negotiations between Canada and the US all contribute to geopolitical and trade uncertainty.

When investors face greater uncertainty around energy supply, tariffs, inflation, and global trade relationships, gold generally experiences stronger demand.

US Treasury Secretary Scott Bessent stated that the war in Iran is nearing its "end game," with the US planning strong economic measures against Tehran. These measures aim to disrupt Iran's economy until it stands alone. The weakening US dollar, which makes gold more affordable for holders of other currencies, has also supported gold prices. Short-term expectations of softer monetary policy, as investors anticipate the Federal Reserve maintaining interest rates at its September meeting, have further boosted gold prices.

However, the outlook for gold depends on the response to the US measures against Iran. A broad, allied-backed plan could tighten supply expectations and push prices higher, while a narrower or poorly received plan could extend today's pullback. Nonetheless, the threat of Iran blocking oil exports through the Strait of Hormuz remains a tail risk, and any escalation could cause a sharp upside shock to oil prices due to the significant volume of crude passing through the strait.