Gold prices climbed for a third straight day, with spot gold gaining 3.8% to reach $4,231.79 an ounce, while silver saw a 5.1% increase to $62.59 an ounce. This rally is attributed to increasing optimism surrounding a potential interim deal to reopen the Strait of Hormuz, a development that is easing inflation concerns and subsequently lessening the likelihood of aggressive interest rate hikes by the Federal Reserve. The prospect of less monetary tightening is generally bullish for non-yielding assets like gold.
The reopening of the Strait of Hormuz is expected to alleviate energy supply concerns, leading to lower oil prices. West Texas Intermediate (WTI) crude already fell towards $75.50, its lowest in three weeks, and lost nearly 5% to $76.09 per barrel. This reduction in energy costs is projected to curb inflationary pressures, thereby reducing the urgency for the Federal Reserve to raise interest rates. The market is now fully pricing in only a single US rate increase by year-end, down from two just last week, as indicated by the CME FedWatch Tool showing the probability of a September rate hike dropping to 57.1% from 67.2%.
Adding to gold's support, the US Dollar Index (DXY) edged lower, and US Treasury yields also declined. These factors make gold a more attractive investment. However, despite the positive momentum, gold remains below its 100-day Simple Moving Average (SMA) of approximately $4,398-$4,407, with initial resistance at $4,100 and then $4,200. Support levels are seen at the 21-day SMA around $4,062-$4,064 and a stronger horizontal support at $4,000. Traders are now keenly awaiting upcoming US labor market data, including ADP Employment Change on Wednesday and Nonfarm Payrolls on Friday, for further signals on the Fed's monetary policy direction.
