Gold prices rebounded modestly in the Asian trading session on Monday, with trading centered around $4,130 and intraday gains topping $50, extending last week's advance of about 5%. The immediate driver was a shift in geopolitical risk expectations. U.S. President Donald Trump said he would be unlikely to order a new strike on Iran as long as relevant negotiations continue. The remark pushed oil prices lower and eased some concerns about a resurgence of inflation, giving gold short-term support.
The link between gold and Middle East tensions has not followed the traditional safe-haven playbook in recent weeks. Geopolitical escalation normally boosts gold demand, but in the current environment rising tensions can pressure prices through oil, inflation and rate expectations. Higher crude prices lift inflation expectations, can push bond yields higher and strengthen the case for major central banks to keep tightening policy, raising the opportunity cost of holding non-yielding gold. Monday's rebound was built on Trump's de-escalatory comments and softer oil prices.
Yet the support remains fragile. Over the weekend, U.S. Secretary of State Marco Rubio said talks with Tehran had not made substantial progress. At the same time, a suspected Iranian drone attack shut production at a major natural gas field in Iraq, while Houthi militants struck several targets in Riyadh, including a Saudi Aramco building. Washington and Tehran both reported shipping disruptions near the Strait of Hormuz. If these events continue to escalate and push oil higher, the inflation and rate transmission channels could weigh on gold again.
Fed policy expectations remain the main constraint on prices. U.S. October employment data were strong, with job growth accelerating and unemployment falling to 4.1%, showing the labor market remains resilient. Market-based rate pricing showed traders now assigning about an 80% probability to a December Fed rate hike, up from roughly 70% before the jobs report. Rising rate expectations increase the cost of holding gold and cap further gains. Meanwhile, a stock selloff after U.S. midterm elections and growing concern that shifts in AI-related demand could weigh on growth had cooled rate-hike expectations before the latest data reignited them.
The tightening outlook is not confined to the United States. A former chief economist at the Bank of Japan has said the central bank may raise rates in December and continue lifting borrowing costs next year, gradually moving the policy rate toward 2%. That expectation reinforces a higher global bond yield environment, adding indirect pressure on gold.
Some support factors remain. India's key festive season began on Friday, and physical gold demand has started to recover. The earlier pullback in prices attracted bargain hunters back into the market, with some investors stepping in after months on the sidelines. Central bank buying has also been a key structural support in recent years. Reserve managers seeking to reduce reliance on the dollar often maintain a steady pace of gold purchases, helping absorb selling pressure during price corrections.
A strong dollar continues to limit upside. Supported by wider interest-rate differentials, the dollar remains resilient and weighs on dollar-priced gold. Investment flows are highly sensitive to changes in Fed rate expectations. Markets are now waiting for U.S. consumer price index data due Tuesday to gauge whether inflation pressure is strong enough to support further policy tightening.
