Key Highlights

  • Gold rose 0.85 percent to around $4,089.65 an ounce.
  • Treasury Secretary Scott Bessent said a Strait of Hormuz deal could be reached today or tomorrow.
  • The implied probability of a September Fed rate hike fell to 57 percent.
  • New York Fed President John Williams said inflation continues to trend gradually lower.

Diplomatic Developments Shape Gold's Advance

Gold rose 0.7% to $4,080 per ounce on Tuesday as investors assessed diplomatic efforts to ease US-Iran tensions and their potential impact on oil prices, inflation, and the Federal Reserve's policy outlook. US Treasury Secretary Scott Bessent said a deal to reopen the Strait of Hormuz could be reached as soon as today or tomorrow, while Qatari Foreign Ministry spokesperson Majed al-Ansari said negotiations remain ongoing, with de-escalation and reopening the vital waterway as the top priorities.

The developments prompted markets to lower expectations for a September Fed rate hike, with the implied probability falling to 57 percent. This decline in rate hike expectations reflects the market's view that easing oil prices tied to progress in the Hormuz negotiations could reduce inflationary pressure, in turn lessening the need for the Federal Reserve to tighten policy further.

Labor Market Data and Fed Commentary in Focus

Investors now await upcoming US labor market data for further clues on the Fed's policy path, given how directly employment trends factor into the central bank's dual mandate considerations alongside inflation. New York Fed President John Williams said inflation continues to trend gradually lower but reiterated that policymakers would not hesitate to raise rates if price pressures persist, striking a balanced tone that leaves the door open to further tightening despite the recent moderation in rate hike odds.

Gold's gain despite typically being a safe haven asset that might be expected to decline as geopolitical tensions ease illustrates how the metal's price action in this instance was driven more by the anticipated impact of lower oil prices on Fed policy than by a direct safe haven demand channel. This dynamic underscores gold's complex sensitivity to multiple, sometimes offsetting, macro factors simultaneously.

Balancing Diplomatic Progress Against Persistent Fed Rate Hike Risk

Gold's near term trajectory will likely depend on how the Strait of Hormuz negotiations progress and whether upcoming labor market data reinforces or challenges the market's reduced expectations for a September rate hike. Should labor data come in weaker than expected, this could further reduce rate hike probabilities and provide additional support for gold.

Conversely, should the Hormuz talks break down or labor market data show unexpected strength, rate hike expectations could quickly reverse higher, potentially weighing on gold given the metal's sensitivity to the opportunity cost of holding non-yielding assets. John Williams' explicit statement that policymakers would not hesitate to raise rates if price pressures persist suggests the Fed retains a hawkish bias that could reassert itself depending on incoming data.

Conclusion

Gold's rise to around $4,090 an ounce reflects the complex interplay between easing Middle East tensions, their anticipated impact on oil prices and inflation, and the resulting shift in Federal Reserve rate hike expectations. Whether gold extends its gains may depend heavily on upcoming labor market data and how the Strait of Hormuz negotiations ultimately resolve. The metal's price action highlights how multiple macro channels, rather than a single dominant catalyst, are currently shaping precious metals sentiment.