Gold prices climbed more than 1% on Monday as easing tensions in the Middle East sent oil prices sharply lower, weakened the U.S. dollar and prompted investors to scale back expectations for near-term U.S. interest rate increases ahead of this week’s Federal Reserve policy meeting.
The rebound indicates that investor sentiment has rapidly shifted from inflation fears to expectations of a more benign policy environment after Washington and Tehran signaled a pause in hostilities, easing concerns that the conflict would further disrupt global energy supplies.
Spot gold rose 1.3% to $4,103.59 an ounce by 0723 GMT, while U.S. gold futures gained 0.9% to $4,106.00.
Register for Tekedia Mini-MBA edition 20 (June 8 – Sept 5, 2026).
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
“Gold is a clear beneficiary today of the dual price action in oil and the U.S. dollar,” said Tim Waterer, chief market analyst at KCM Trade.
The gains came after Iran said it would halt its attacks as long as the United States did the same, following Washington’s decision to pause its bombing campaign. The de-escalation triggered a broad risk-on move across financial markets, with Brent and U.S. crude prices tumbling more than 6% as fears of supply disruptions through the Strait of Hormuz eased.
But the decline in oil prices carries broader implications for monetary policy. Higher crude prices typically filter through to transportation, manufacturing and consumer costs, raising inflationary pressures that can compel central banks to keep interest rates elevated for longer. Lower energy prices, by contrast, ease those inflation risks and reduce pressure on policymakers to tighten monetary policy.
That shift benefited gold, which has struggled in recent months as rising oil prices fueled expectations that the Federal Reserve would maintain restrictive monetary policy. While gold is widely viewed as a store of value during periods of inflation and geopolitical uncertainty, higher interest rates increase the opportunity cost of holding the non-yielding asset, often limiting its upside.
Another major tailwind came from the currency market.
The U.S. dollar weakened against most major peers after the pause in hostilities improved investor confidence, reducing demand for the safe-haven greenback. The dollar index fell as much as 0.3% during Asian trading, making dollar-denominated bullion less expensive for overseas buyers and increasing its appeal.
Against the Japanese yen, the dollar slipped 0.2% to 163.585, its biggest decline since July 10. The euro advanced 0.3% to $1.1403, while sterling gained 0.2% to $1.3352.
Although the dollar index later steadied around 101.21, analysts said geopolitical developments remain the dominant driver of both currency and commodity markets.
“Markets remain on the edge around the U.S.-Iran conflict and the path of oil prices,” analysts at MUFG wrote in a research note.
“While it is difficult to know for sure how things will pan out, our base case remains for de-escalation over time for several reasons and as such for oil prices to decline.”
Investor attention is now firmly focused on the Federal Reserve’s July 28-29 policy meeting, which is expected to provide fresh guidance on the outlook for U.S. interest rates. The central bank is widely expected to leave its benchmark rate unchanged this week, but markets are closely watching Chair Jerome Powell’s comments for clues on whether policymakers remain concerned about inflation risks or are becoming more confident that price pressures are easing.
Interest-rate expectations moderated slightly following the decline in oil prices.
Fed funds futures now imply a 33.7% probability of a 25-basis-point rate increase at the conclusion of this week’s meeting, down from 37.4% on Friday, according to CME Group’s FedWatch Tool. However, traders continue to price in a roughly 74% chance of another increase at the September meeting, suggesting markets still expect the Fed to retain a tightening bias.
The combination of falling Treasury yield expectations, a softer dollar and geopolitical uncertainty continues to provide a supportive backdrop for bullion, even as investors await greater clarity from the Fed.
Waterer said gold’s near-term direction will remain closely linked to developments in energy markets and geopolitical headlines.
“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,” he said.
From a technical perspective, Reuters market analyst Wang Tao said spot gold could retest resistance around $4,117 after holding above key support at $4,038 and staging a strong rebound, suggesting bullish momentum remains intact if the support level continues to hold.
The rally extended across the broader precious metals complex.
Spot silver surged 2.7% to $59.74 an ounce, outperforming gold as investors returned to industrial and precious metals. Platinum jumped 3.5% to $1,643.70, while palladium gained 3.4% to $1,285.00, reflecting renewed appetite for cyclical assets following the easing of geopolitical tensions.
Risk appetite also lifted digital assets. Bitcoin rose 1% to $65,286.74, while ether advanced 1.7% to $1,945.22 as investors rotated back into higher-risk investments amid improving global market sentiment.
Currently, investors remain caught between two powerful forces: geopolitical developments that continue to influence safe-haven demand and energy prices, and the Federal Reserve’s policy outlook, which will shape the trajectory of the U.S. dollar, Treasury yields and, ultimately, the next move in gold.