Gold pulls back amid Middle East tensions and Fed rate uncertainty

Gold retreats after being rejected near $4,435 again.
Middle East tensions and Trump’s threats cap gains.
But softer US data keeps September hike odds low.
Wednesday’s Fed minutes could help gold break above $4,435.

Charalampos Pissouros XM

Gold extended its gains on Monday, but it 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, but US President Trump escalated his rhetoric to another level 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.

WTI crude oil closed above $85 per barrel for the first time since July 31, but according to Fed funds futures, it failed to significantly revive concerns about inflation. Following the disappointing NFP report for July, the soft inflation data for the same month, and the weak retail sales, investors are now assigning a 35% chance of a September rate hike, while they are penciling in only 40bps of rate increases by the end of 2027.

Maybe that’s why the slide in gold was modest. The precious metal experienced a strong recovery from near the key $4,000 zone amid the weakness in the US dollar and the flattening of the Fed’s implied rate path, but it is now struggling to overcome the $4,435 area.

Should the bulls manage to take charge from above the $4,345 zone this week, they could overcome that hurdle and aim for the $4,500 barrier. If they breach through that territory as well, then the next stop may be at $4,600, defined as resistance by the high of May 29.

What could add fuel to such a rally could be less hawkish-than-expected Fed minutes. If the minutes suggest that policymakers were in no rush to raise rates even before the latest bunch of soft US data, then the probability of a September hike could decline further, thereby reducing the opportunity cost for holding the precious metal.

On the other hand, a significant escalation in the Middle East that puts the September hike well back on the table, could push gold below $4,345, a move that could encourage the bears to dive all the way down to the $4,200 zone, marked by the inside swing high of July 6.

Author

Charalampos Pissouros

Charalampos joined Trading Point in August 2022 as a senior market analyst. He has extensive experience in analyzing financial markets, gained through a decade-long career, with his primary focus being on the currency market.

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