Gold Prices Drop as Fed Rate Outlook and Iran Tensions Weigh on Market

Gold prices declined sharply on Monday despite a weaker U.S. dollar, as renewed Middle East tensions and expectations for higher U.S. interest rates continued to pressure the precious metal. Investors also shifted their attention to a series of key U.S. labor market reports expected this week, which could shape the Federal Reserve’s next policy decision.

Spot gold fell 1.8% to $4,016.92 per ounce, while U.S. gold futures dropped 1.6% to $4,031.22 per ounce. The decline extended gold’s recent weakness, with spot prices recording a fifth consecutive weekly loss and futures posting their fourth losing week in five.

According to David Morrison, senior market analyst at Trade Nation, gold briefly rebounded toward $4,100 late last week after falling below $4,000 to its lowest level since early November. However, the recovery quickly faded as prices resumed their downward trend. Morrison noted that traders are now debating whether gold has established a bottom after its five-month decline from January’s record highs or whether prices could slide further.

He warned that another move below $4,000 could send gold toward the late-October lows near $3,900. If that support fails, technical indicators suggest the next major support zone may not emerge until below $3,500. While the daily MACD has returned to oversold territory, Morrison said it is not as deeply oversold as it was earlier this year.

Gold remained under pressure even as the U.S. dollar weakened on Monday. Typically, a softer dollar makes bullion more attractive for overseas buyers, but investors instead focused on expectations that the Federal Reserve may keep monetary policy tighter for longer.

Last week’s inflation data showed the Fed’s preferred inflation measure reached its highest annual level since late 2023, matching economists’ forecasts. Although some investors believe inflation may have peaked as oil prices eased from recent highs, markets remain cautious about the possibility of further interest rate hikes or an extended period of elevated borrowing costs.

Attention now turns to this week’s U.S. economic calendar. Investors will closely watch the Job Openings and Labor Turnover Survey (JOLTS), the ADP private payrolls report, and the closely watched nonfarm payrolls report. Strong employment figures could reinforce expectations that the Fed will delay any policy easing, a scenario that would likely remain negative for non-yielding assets such as gold.

Geopolitical developments also remained a major focus after fresh military exchanges between the United States and Iran reignited concerns over global energy supplies. Rising oil prices fueled fears that inflationary pressures could persist, reducing the likelihood of near-term rate cuts.

The latest escalation followed reported attacks on commercial vessels near the Strait of Hormuz and subsequent U.S. military strikes on Iranian targets. Iran later responded with missile and drone attacks targeting U.S. military bases in the Gulf region, increasing uncertainty across global financial markets.

Sentiment improved slightly after President Donald Trump announced that Iran had requested talks scheduled to take place in Doha on Tuesday. White House Press Secretary Karoline Leavitt confirmed that U.S. officials, including Special Envoy Steve Witkoff and Jared Kushner, would participate in the meeting, emphasizing that Washington continues to honor the existing ceasefire. However, Iran’s foreign ministry denied that any negotiations with the United States were planned, leaving investors uncertain about whether diplomatic efforts can ease regional tensions.