Gold prices moved higher on Tuesday after briefly touching their lowest level in two weeks, with bargain buying emerging following Monday’s sharp decline as investors looked ahead to key US inflation figures and testimony from Federal Reserve Chair Kevin Warsh.
Ongoing tensions in the Middle East and expectations that US interest rates could remain elevated also continued to influence sentiment after recent hawkish comments from Federal Reserve Governor Christopher Waller.
At 09:58 GMT, spot gold (XAU/USD) gained 0.5% to $4,021.87 an ounce, while Gold Futures advanced 0.55% to $4,027.22. Silver (XAG/USD) rose 0.78% to $58.10 an ounce, and platinum (XPT/USD) added 0.34% to $1,609.82.
Geopolitical Risks Keep Inflation in the Spotlight
Gold recovered after falling almost 3% on Monday, its largest single-day decline in more than a month. During the sell-off, the precious metal briefly traded below the $4,000-an-ounce level for the first time in three weeks.
The latest market volatility followed a renewed escalation in the Middle East. President Donald Trump announced the reinstatement of a US blockade targeting Iranian shipping and declared Washington the “Guardian of the Hormuz Strait,” while proposing a 20% fee on cargoes passing through the strategic waterway.
The developments increased concerns that higher energy prices could add to inflationary pressures, complicating the Federal Reserve’s efforts to return inflation to its 2% target.
For gold investors, rising inflation creates mixed implications. Higher energy costs can increase demand for bullion as a store of value, but expectations of tighter monetary policy may strengthen the US dollar and bond yields, reducing the appeal of non-yielding assets.
Waller’s Comments Lift Rate Expectations
Gold also faced pressure after Federal Reserve Governor Christopher Waller said policymakers may need to raise interest rates in the near term if underlying inflation continues to show broad-based strength.
ANZ analysts said the renewed tensions in the Middle East had reinforced expectations that higher energy prices could keep inflation elevated, increasing the likelihood of tighter monetary policy. The bank noted that markets are now pricing in a 43% probability of an interest rate increase at the Federal Reserve’s 28-29 July policy meeting.
Higher interest rates generally reduce demand for gold because they increase the opportunity cost of holding assets that do not generate income while supporting both the US dollar and Treasury yields.
Investors are now focused on the release of June’s US Consumer Price Index report and Kevin Warsh’s testimony before Congress, with both events expected to play a key role in shaping expectations for the Federal Reserve’s next policy decisions.