Gold gains as US dollar declines, hopes of Mideast deal hit oil

Gold prices gained on Monday as the dollar weakened and optimism over a possible U.S.-Iran agreement sent oil prices sharply lower, tempering inflation fears and expectations of prolonged high interest rates. Spot gold was up 0.4% at $4,055.36 per ounce, as of 0830 GMT. U.S. gold futures edged 0.2% higher to $4,054.20. The precious metal posted its first monthly rise in five in July, rising about 1%. Oil prices slumped more than $4 a barrel, after U.S. President Donald Trump held off a fresh attack on Iran as he sought a quick deal that would halt Tehran's nuclear ambitions and reopen the Strait of Hormuz. Trump said that talks with Iran will happen on Monday but declined to set a deadline for an agreement. "We are back to the previous correlation, with gold rising when crude oil falls, and gold falling when oil rises... The lower oil price is today reducing modestly U.S. rate hike expectations for this year, and supporting gold," UBS analyst Giovanni Staunovo said. Elevated oil prices stoke concerns around inflation and higher interest rates, diminishing bullion's appeal as a non-yielding asset. Further supporting gold, the U.S. dollar came under pressure, hitting its lowest since mid-June, after authorities intervened in the foreign exchange market to support the yen, while yields on the benchmark 10-year U.S. Treasury note also fell. Also in focus is a set of U.S. jobs reports due this week, including the ADP employment report, and nonfarm payrolls data. "A weaker U.S. job market would allow the Fed to keep rates on hold this year, and that would be positive for gold, as the market prices out rate hikes for this year," Staunovo said. Three U.S. Federal Reserve officials who dissented at the policy meeting last week in favour of a rate hike expressed concerns on Friday that without an immediate increase in short-term borrowing costs, inflation will stay stuck above the Fed's 2% target. Spot silver gained 1% to $58.18, platinum climbed 0.3% to $1,647.25, and palladium firmed 0.5% to $1,280.25.