Gold prices are wavering around $4,050 to $4,100 per ounce as market participants assess developments surrounding the Strait of Hormuz. Initial reports of a potential deal to reopen the critical waterway, which has been impacted by geopolitical tensions, have significantly influenced the yellow metal. Progress in negotiations, potentially led by Oman and Qatar, has led to a sharp decline in oil prices and a weaker US Dollar, easing inflation risks and reducing pressure on the Federal Reserve to raise interest rates.
The prospect of a Hormuz deal has caused market expectations for a September Fed rate hike to drop. The CME FedWatch Tool now shows the probability of a rate hike at around 57%, down from 67% just a day earlier. This shift is particularly supportive for gold, as higher interest rates typically diminish the appeal of non-yielding assets. Bullion saw a significant surge, with one report noting a 4.1% advance in a single session, pushing it briefly above $4,300 an ounce after trading around $4,050 earlier in the week.
While some analysts note that the situation remains fluid, with no official confirmation from Tehran regarding direct talks or an agreement to reopen the Strait, the sentiment has clearly shifted. The decline in US crude oil prices, with West Texas Intermediate (WTI) falling towards $75.50, further underscores the market's reaction. Investors are now closely watching upcoming US labor market data, including ADP's July private payrolls report and Friday's Nonfarm Payrolls, for additional clues on the Fed's policy outlook. Softer labor figures could further reduce rate-hike expectations and provide continued support for gold.
