Gold (XAU/USD) traded in a narrow range above $4,050 during the Asian session on Tuesday, as investors remained cautious amid ongoing geopolitical tensions and uncertainty over US Federal Reserve policy direction [1]. The US Dollar struggled to extend its rebound from the lowest level since mid-June, providing some support to gold prices. However, the lack of progress in US-Iran peace talks and reports of Iran’s Islamic Revolutionary Guard Corps (IRGC) attacking a US military base in Kuwait with at least three drones heightened geopolitical risks, bolstering demand for safe-haven assets like the USD and gold [1].
Iran’s Supreme Leader adviser, Mohsen Rezaee, dismissed US President Donald Trump’s claims regarding the reopening of the Strait of Hormuz, warning that Iran would not allow unauthorized shipping routes and would target US warships if necessary. This, combined with the Iran-backed Houthi rebels’ naval blockade against Saudi Arabia, fueled concerns over global energy supplies and contributed to a recovery in oil prices [1].
Rising energy prices have reignited fears of inflation, leading traders to increase bets on further Fed rate hikes. According to the CME Group’s FedWatch Tool, there is now over a 60% probability of a Fed rate hike in September and more than an 85% chance of a hike by the end of the year. These expectations were reinforced by the US ISM PMI data released on Monday, which showed US manufacturing activity at its highest level in over four years in July [1].
Despite these developments, market participants are holding off on making significant moves ahead of the US Nonfarm Payrolls (NFP) report due on Friday, which is expected to provide further clarity on the Fed’s policy trajectory and influence both USD and gold price dynamics in the near term [1].
CONCLUSION
Gold prices remain stable above $4,050 as traders weigh heightened geopolitical risks and the prospect of further Fed rate hikes. Market participants are expected to stay cautious until the release of the US Nonfarm Payrolls report, which could provide clearer direction for both the USD and gold. The current environment suggests a balanced outlook, with safe-haven demand and rate hike expectations offsetting each other.