Gold gains on pause in US-Iran fighting; Fed decision looms

Gold rose more than 1% on Monday as a pause in Middle East hostilities sent oil prices lower, alleviating some inflation concerns, while investors awaited the U.S. Federal Reserve's policy decision.

Spot gold XAU= rose 1.4% to $4,110.56 per ounce by 0200 GMT. U.S. gold futures GCcv1 gained 1% to $4,112.10.

"Gold is a clear beneficiary today of the dual price action in oil and the U.S. dollar, both of which have dropped on de-escalation hopes between the U.S. and Iran. Lower oil is easing inflation concerns," said Tim Waterer, chief market analyst at KCM Trade.

The U.S. dollar index .DXY was down 0.3%, making greenback-priced metals more affordable for other currency holders.

Iran will halt its own attacks as long as the United States does the same, a senior Iranian official told Reuters on Sunday. The development comes as the United States pressed pause on its bombing campaign after President Donald Trump's advisers told him they were running out of targets and expressed worries about depleting the U.S. arsenal.

Oil prices were down more than 4% for the day. O/R

Since the conflict began earlier this year, oil prices have gained, driving inflation concerns and expectations of central bank rate hikes. This has weighed on gold, which, despite traditionally being seen as an inflation hedge, becomes less attractive as higher rates raise the opportunity cost of holding the non-yielding metal.

"Longer term, I remain constructively bullish on gold. Gold's immediate fate is closely tied to where oil prices head from here and the path higher is likely to remain volatile and heavily influenced by geopolitical headlines until a more durable peace takes hold," Waterer added.

Market focus is also on the Federal Reserve policy meeting this week, where investors and economists widely expect rates to be kept unchanged. Traders are pricing in about an 80% chance of a hike in September, according to the CME FedWatch Tool.