Gold prices marginally higher amid U.S.-Iran setback; traders eye inflation data

Gold prices edged higher on Monday, reversing earlier losses, but gains were capped and the overall mood remained one of caution after a diplomatic setback between the U.S. and Iran and ahead of key inflation data later this week. 

At 16:28 ET (20:28 GMT), spot gold was up 0.4% to $4,734.84/oz, while gold futures added 0.3% to $4,744.81/oz.

Trump rebuffs Iran’s proposal, says ceasefire on ’life support’

Over the weekend, Iran’s state media said Tehran had formally responded to a U.S. plan to end their more than two-month old conflict. The response called for an end to fighting on all fronts, recognition of Iran’s sovereignty over the critical Strait of Hormuz, and U.S. compensation for war damages.

President Donald Trump weighed in on Iran’s response within hours, writing on social media: "I don’t like it — TOTALLY UNACCEPTABLE."

"The plan is they cannot have a nuclear weapon, and they didn’t say that," Trump told reporters on Monday, adding that the proposal was "stupid."

Trump claimed that two days ago Iran had agreed to end nuclear enrichment and had requested the U.S. to take out its nuclear material, which Trump refers to as "nuclear dust." But the president said Iran changed its mind and did not include anything about nuclear activities in the proposal it sent.

Trump also said that an ongoing ceasefire between the U.S. and Iran was "unbelievably weak" and was on "massive life support."

Aside from Iran’s nuclear program, another major sticking point between the U.S. and Iran revolves around control over the Strait of Hormuz. The vital waterway for a fifth of the world’s oil and gas has been effectively shuttered since the end of February, leading to the biggest supply disruption in history.

Trump told Fox News that he was considering restarting a U.S. effort called "Project Freedom" to safely help commercial ships transit the strait. The chokepoint has been blockaded by both the U.S. and Iran.

Gold has struggled throughout the war, weighed down by expectations that soaring energy costs due to the conflict will drive up inflation and lead central banks to raise interest rates. Non-yielding assets like bullion tend to underperform in higher rate environments.

Oil prices ticked up on Monday after the latest diplomatic setback, with Brent crude futures expiring in July, the global oil benchmark, last up 3% to $104.28 a barrel. At the same time, the U.S. dollar firmed slightly as safe haven demand was boosted. A stronger greenback can make gold more expensive for overseas buyers.   

Inflation data in the spotlight

Away from the Middle East, traders were also gearing up for key U.S. inflation data, with the April consumer price index (CPI) and producer price index (PPI) reports scheduled for Tuesday and Wednesday, respectively. 

Spiking oil prices due to the Iran war have led to soaring gasoline prices at U.S. pumps, while boosting headline CPI and PPI in March. Core prices, which strip away food and energy, have not seen much of an impact yet.