Gold Edges Higher as Diplomatic Hopes Weigh on USD Ahead of FOMC Meeting

Gold prices rose on Monday as hopes for diplomatic resolution in US-Iran tensions and falling oil prices weighed on the US Dollar.

The US paused its bombing campaign against Iran late on Friday, following 13 consecutive nights of strikes. US ambassador to the United Nations (UN) Mike Waltz said that while forces remained locked and loaded, President Donald Trump wants to give negotiations 'a little bit of room'. In response, a senior Iranian official told Reuters on Sunday that Tehran will halt its own attacks as long as the US does the same.

This optimism about a lasting path to de-escalation of US-Iran tensions resulted in some unwinding of the geopolitical risk premium, which weighs heavily on the buck. Crude oil prices fell around 5% amid reviving hopes for a diplomatic resolution to end a five-month-old US-Iran war.

The easing of hostilities dragged crude oil prices lower and forced investors to trim their bets for an immediate interest rate hike by the US central bank, leading to a modest pullback in US Treasury bond yields. This further undermined the USD, which had reached its monthly high last week.