Traders weighed the prospects of an agreement to reopen the Strait of Hormuz while awaiting tonight’s CPI data release, sending gold prices higher.
Gold surged as much as 1.1%, returning above $4,400 per ounce after falling from a two-month high the previous day. Pakistan’s defense minister said that despite both the U.S. and Iran appearing firm on this vital global energy corridor, the two nations are “close to reaching some kind of agreement” to reopen the Strait of Hormuz.
With Middle East tensions remaining stalemate, oil prices rebounded, casting doubt over the Federal Reserve’s willingness to raise interest rates. Traders held back on large bets ahead of Wednesday evening’s inflation report. Interest rate swap data showed traders see almost no chance of a 25-basis-point hike next month.
According to a Bloomberg survey of economists, the closely watched Consumer Price Index (CPI) is expected to rise 0.1% in July, following a 0.4% decline the prior month. A slowdown in price growth could help ease some of the Fed’s inflation concerns after Friday’s weak jobs report.
However, if rising energy prices bring greater inflationary pressure, momentum toward more aggressive monetary policy would strengthen—typically weighing on gold, which pays no interest. On Wednesday, benchmark Brent crude rose for the sixth consecutive trading session.
The macroeconomic environment has improved somewhat but remains fragile. Weaker dollar and reduced expectations of further Fed tightening have supported precious metals, but renewed inflation pressures, another oil surge, or stronger U.S. economic data could quickly reignite rate hike speculation.
Gold has held its support level, though a resumption of the bull market has not yet been confirmed. Support near $4,200 is becoming increasingly critical, while the main upside test again centers on the 200-day moving average, currently just below $4,500.
