Gold surges above $4,100 as US-Iran fighting pause sends oil prices lower

Spot gold rose as much as 1.6% to top $4,100, according to Bloomberg. By late morning in London, spot gold was up 1.1% to $4,095.16 an ounce, while silver jumped 1.9% to $59.27. Brent crude tumbled as much as 9.5%. The U.S. dollar index fell 0.2%, lowering the cost of dollar-denominated gold for international purchasers.

For the third night running, neither Washington nor Tehran launched new attacks against the other, according to Bloomberg. Iran said on Sunday it would halt its own attacks as long as the U.S. does the same, a senior Iranian official told Reuters, according to CNBC. The lull followed Iranian and Omani officials meeting over the weekend to discuss shipping through the Strait of Hormuz.

"Precious metals have started the week on the front foot, helped by a pause in Middle East hostilities. Oil has slumped and both the dollar and U.S. Treasury yields have eased," independent analyst Ross Norman said.

The drop in oil matters for monetary policy because surging energy costs push up consumer prices and strengthen the case for rate increases — both of which weigh on gold, since the metal generates no interest income. Attention is turning to the Fed's Wednesday announcement, with roughly 66% of market participants anticipating no change in rates, according to CNBC. Traders are pricing in roughly a 77% chance of a rate increase in September, according to the CME $CME FedWatch Tool.

"Gold is flashing cautiously positive signals: one eye on Iran, the other on the Fed. If [Fed Chair Kevin] Warsh pushes back against the roughly two hikes now embedded in the curve, that could be quite supportive for gold," Norman said.

Since late June, gold has been range-bound, with persistent demand whenever prices approach $4,000 preventing a break below that level. Gold has shed more than a fifth of its value since the U.S. and Israel launched strikes on Iran in late February, an offensive that broke a multiyear rally that had carried prices to nearly $5,600 an ounce.

Justin Lin, an analyst at Global X $TWTR ETFs, said that a "meaningful resolution between the U.S. and Iran before bidding gold beyond this range of $4,000 to $4,200" is what the market requires, and that as long as the conflict continues, lofty yields and inflation expectations will cap any advance.

The renewed fighting that preceded Monday's pause had pushed Brent crude above $100 a barrel last week for the first time since late May, lifting September rate-hike odds in fed funds futures to roughly 82% and sending U.S. stocks lower.