Gold prices extended their gains on Tuesday, holding close to their highest level in more than two months as renewed investor demand outweighed pressure from a stronger U.S. dollar, higher Treasury yields and rising energy prices.
At 00:56 ET (04:56 GMT), XAU/USD gained 0.4% to $4,407.79 an ounce, while gold futures advanced 1.1% to $4,467.59. XAG/USD fell 0.5% to $65.41 an ounce, while XPT/USD edged 0.2% higher to $1,761.10.
Gold rally gathers pace before U.S. inflation figures
The latest move follows a 2.4% jump in gold on Friday after data showed an unexpected decline in U.S. nonfarm payrolls during July. Bullion then finished Monday around $4,390, gaining 1.11% and recording its strongest daily close in almost 10 weeks.
The strength of the rally stands out because the dollar, Treasury yields and energy prices have also risen. These conditions would traditionally create headwinds for gold, which does not generate interest income.
Tony Sycamore, senior market analyst at IG, attributed the resilience partly to buying from investors who missed gold’s earlier decline towards $4,000, alongside speculative short-covering and renewed safe-haven demand.
Attention is now turning to Wednesday’s U.S. consumer price index and Thursday’s producer price index, which could provide further signals about the Federal Reserve’s interest-rate outlook.
According to CME FedWatch, markets are pricing in a 52% probability of a September rate increase and an 81% chance of a hike in December.
Higher interest rates can reduce the relative appeal of gold because investors do not receive interest income from holding the metal.
Strait of Hormuz uncertainty supports safe-haven demand
Developments surrounding the Strait of Hormuz are also influencing the gold market.
Iran said it was approaching a final agreement with Oman concerning new shipping lanes through the strategic waterway. However, Tehran maintained that additional U.S. conditions must be satisfied before the strait can reopen.
Uncertainty around the negotiations has contributed to another increase in oil prices. Stalled U.S.-Iran discussions and President Donald Trump’s demand for Iranian compensation have complicated expectations for an agreement.
Higher energy costs could add to inflationary pressure, potentially restricting the Federal Reserve’s ability to loosen monetary policy.
Chinese central bank buying adds another source of demand
Demand from China is providing additional support for bullion. The People’s Bank of China increased its gold reserves in July by the largest amount since October 2023, indicating continued official-sector purchases.
Meanwhile, the U.S. Dollar Index was broadly unchanged around 99.8 after strengthening alongside oil prices, providing little additional direction for gold.
Sycamore said gold’s recovery from its June low of $3,942 has positioned the metal to test downtrend resistance around $4,460. That level is linked to the late-January high, with the 200-day moving average providing additional resistance near $4,495.
He expects the $4,460 to $4,500 area to initially limit further gains, while a sustained move above that range could open the way for a broader recovery towards $5,000.