Gold prices recovered on Tuesday after briefly falling to their lowest level in two weeks.
The rebound followed a sharp sell-off in the previous session, with bargain hunters returning to the market ahead of key US inflation data and Federal Reserve Chair Kevin Warsh’s congressional testimony.
Ongoing tensions in the Middle East also remained in focus. At the same time, investors assessed the possibility that the Federal Reserve could keep interest rates higher for longer.
At 05:58 ET, spot gold rose 0.54% to $4,022.87 an ounce. Gold futures gained 0.59% to $4,029.22.
Silver increased 0.63% to $58.02 an ounce, while platinum advanced 0.42% to $1,610.82.
Gold Recovers After Sharp Sell-Off
Gold prices rebounded after falling nearly 3% on Monday.
The decline marked the metal’s steepest one-day loss in more than a month. Gold also briefly dropped below $4,000 an ounce for the first time in three weeks.
The latest recovery appeared to be driven partly by bargain buying after the sharp decline.
However, traders remained cautious ahead of major economic and political events later in the day.
Middle East Tensions Support Oil Prices
The previous session’s sell-off came as tensions in the Middle East intensified.
US President Donald Trump said Washington would restore its blockade of Iranian shipping in the Gulf. He also described the United States as the “Guardian of the Hormuz Strait.”
Trump proposed a 20% charge on cargo passing through the strategic waterway.
The announcement represented a major escalation in pressure on Iran. It also raised fresh doubts about the stability of the ceasefire reached in June.
Oil Rally Revives Inflation Concerns
Crude oil prices extended their recent gains as investors evaluated the risk of renewed supply disruptions through the Strait of Hormuz.
The waterway is a major route for global energy shipments. Therefore, any disruption could push oil prices even higher.
Rising energy costs may increase inflation by raising transportation, production and consumer expenses.
This could make it more difficult for the Federal Reserve to bring inflation back toward its target.
Inflation Creates Mixed Outlook for Gold
The inflation outlook presents both opportunities and risks for gold.
Higher inflation can strengthen gold’s appeal as a store of value and a hedge against declining purchasing power.
However, stronger inflation may also encourage the Federal Reserve to tighten monetary policy.
Higher interest rates can push Treasury yields and the US dollar upward. This often reduces demand for gold because the metal does not generate interest or income.
Waller Comments Raise Rate Hike Expectations
Federal Reserve Governor Christopher Waller said policymakers may need to raise interest rates in the near term.
He suggested further action could be required if underlying inflation continues to show broad price pressures across the economy.
ANZ analysts said the latest escalation in the Middle East had strengthened concerns that rising energy prices could keep inflation elevated.
The brokerage added that this could increase the likelihood of tighter monetary policy.
Markets were pricing in a 43% chance of an interest rate increase at the Federal Reserve’s July 28–29 meeting.
Higher Rates Could Pressure Bullion
Higher borrowing costs typically weaken the appeal of non-yielding assets such as gold.
When interest rates rise, investors can earn more attractive returns from government bonds and other interest-bearing assets.
Higher rates can also support the US dollar. Since gold is priced in dollars, a stronger currency can make bullion more expensive for buyers using other currencies.
As a result, gold could face renewed pressure if expectations for a Federal Reserve rate hike continue to increase.
US CPI and Warsh Testimony in Focus
Investors are now waiting for the June US Consumer Price Index report.
The inflation data could provide important clues about whether price pressures are continuing to strengthen.
Markets are also closely watching Federal Reserve Chair Kevin Warsh’s testimony before Congress.
Both events could influence expectations for the future path of US interest rates and determine gold’s next major move.
