Gold prices drop amid Middle East setback

Spot gold was down 0.6% to $4,681.39/oz, while gold futures declined 1% to $4,694.61/oz

Gold prices dropped on Monday, as investors were cautious following a diplomatic setback between the U.S. and Iran.

At 19:45 GMT, spot gold was down 0.6% to $4,681.39/oz, while gold futures declined 1% to $4,694.61/oz.

Focus this week is on global central bank meetings. The U.S. central bank’s latest rate decision on Wednesday following a two-day gathering. The central bank is widely expected to leave interest rates unchanged, meaning investors will be paying close attention to how the central bank sees economic outlook evolving in the wake of an energy shock sparked by the Iran war.

This week’s meeting is also anticipated to be the last under central bank Chair Jerome Powell, whose term ends on May 15. Kevin Warsh, Trump’s nominee to replace Powell, testified before Congress last week that he had made no commitments to cut interest rates.

Non-yielding gold tends to outperform in lower interest rate environments.

With policy ’well positioned’ to address risks to the outlook, the Fed is set to extend its pause at the April FOMC meeting. The key question is whether they formally adopt two-sided language about the policy outlook in the statement and/or Powell indicates a more balanced risk assessment in the press conference. Our base case is they will wait until the June meeting for meaningful changes to guidance, but the risk is that communications skew more hawkish, Deutsche Bank analysts led by Matthew Luzzetti said in a preview note on Friday.

The impact of the ongoing conflict in the Middle East will be the focus of Powell’s presser. With uncertainty still pervasive, we expect he will emphasize that officials are unsure of the precise fallout from the war on the economy and monetary policy. However, Powell could highlight that persistent price pressures become more likely the longer oil prices remain elevated, the analysts said.