Gold is pulling back after failing again to clear the $4,435 area, with Middle East tensions and Trump's threats capping further gains. Traders are now watching Wednesday's Fed minutes for a cue on whether the recovery toward $4,500 can resume.
Gold extended its gains on Monday but is pulling back today after failing once again to emerge above the temporary ceiling of $4,435. Tensions between the US and Iran over the Strait of Hormuz remain elevated, and President Trump escalated his rhetoric further on Monday when he threatened to strike Oman if the nation "gets in the way" and distorts negotiations with Iran on a deal to reopen the strait.
Crude oil firms, but rate-hike odds stay low
WTI crude oil closed above $85 per barrel for the first time since July 31, but the move failed to significantly revive inflation concerns, according to Fed funds futures. Following the disappointing July non-farm payrolls report, soft inflation data for the same month, and weak retail sales, investors are now assigning a 35% chance of a September rate hike. They are penciling in only 40 basis points of rate increases by the end of 2027.
That may be why gold's slide has been modest. The metal staged a strong recovery from near the $4,000 zone amid dollar weakness and a flattening of the Fed's implied rate hike path, but it is now struggling to overcome the $4,435 area.
Fed minutes could decide the next move
Should bulls take charge from above the $4,345 zone this week, they could clear that hurdle and aim for the $4,500 barrier. A breach there could open the way to $4,600, the resistance marked by the high of May 29.
Less hawkish-than-expected Fed minutes on Wednesday could add fuel to such a rally. If the minutes suggest policymakers were in no rush to raise rates even before the latest soft US data, the odds of a September hike could decline further, reducing the opportunity cost of holding the precious metal. On the other hand, a significant escalation in the Middle East that puts the September hike back on the table could push gold below $4,345. That could encourage bears to test the $4,200 zone marked by the inside swing high of July 6.
Sources: ActionForex, Investing.com
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