Gold Edges Higher as US-Iran Diplomacy Eases Tensions

Gold prices edged higher at the start of the week as diplomatic efforts between the US and Iran helped ease tensions, undermining the safe-haven US Dollar. The pause in bombing campaign against Iran on Friday, followed by optimistic statements from both sides, fueled hopes for a lasting de-escalation of hostilities. This optimism led to an unwinding of geopolitical risk premium, which weighed heavily on the buck.

Crude oil prices slumped around 5% due to the easing of tensions, forcing investors to trim their bets for an immediate interest rate hike by the US central bank. As a result, US Treasury bond yields pulled back modestly, dragging the USD away from its monthly high.

However, traders seem hesitant to place aggressive bearish bets on the USD and are waiting for more cues about the Fed's policy path. The focus remains glued to the outcome of the two-day FOMC meeting on Wednesday.