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Gold prices were little changed on Tuesday as investors balanced escalating tensions in the Middle East against growing expectations that the Federal Reserve could keep interest rates higher for longer. Traders also remained cautious ahead of the release of the closely watched U.S. June Consumer Price Index (CPI), a key indicator that could influence the Fed’s next policy decision.
Spot gold slipped 0.14% to $3,995.64 an ounce, while U.S. gold futures eased 0.09% to $4,002.05, after bullion suffered a sharp decline of nearly 3% in the previous session. Monday’s selloff briefly pushed gold below the $4,000-per-ounce level for the first time in three weeks.
Market sentiment was shaped by rising geopolitical uncertainty after President Donald Trump announced that the United States would reinstate its blockade of Iranian shipping in the Gulf. Trump also declared Washington the "Guardian of the Hormuz Strait" and proposed a 20% charge on cargo moving through the strategic waterway. The move renewed concerns over oil supply disruptions and raised fears that higher energy prices could fuel inflation.
Crude oil extended recent gains, reinforcing expectations that elevated energy costs may complicate the Federal Reserve’s efforts to bring inflation back to its target. Those concerns were amplified after Federal Reserve Governor Christopher Waller said policymakers may need to raise interest rates if underlying inflation continues to show broad-based price pressures.
According to ANZ analysts, the latest developments have increased market expectations that persistent inflation could lead to tighter monetary policy. Investors are now pricing in a 43% probability of a Fed rate hike at the July 28-29 policy meeting.
Higher interest rates generally weigh on gold because the precious metal does not generate interest income, making it less attractive compared with yield-bearing assets while supporting the U.S. dollar and Treasury yields.
Investors are now focused on the upcoming U.S. inflation report and Federal Reserve Chair Kevin Warsh’s congressional testimony, both of which are expected to provide fresh clues on the outlook for U.S. interest rates and the direction of gold prices.
