Gold Holds Near Seven-Week High as Hormuz Deal Hopes Shift Focus to Fed Outlook

Gold remained close to a seven-week high on Thursday, although prices trimmed earlier gains as optimism surrounding a potential agreement to reopen the Strait of Hormuz eased inflation concerns and prompted investors to scale back expectations for further U.S. interest rate hikes.

Spot gold (XAU/USD) rose 0.4% to US$4,262.54 per ounce, while Gold Futures gained 0.4% to US$4,321.65. Other precious metals also advanced, with silver adding 0.2% to US$62.17 per ounce and platinum climbing 1.3% to US$1,756.50.

Market sentiment improved after reports suggested that negotiations involving Iran and Oman could help reopen the Strait of Hormuz, a strategic route for global oil shipments. Expectations that energy supplies could normalize weighed on crude oil prices and reduced concerns that higher energy costs would fuel another wave of inflation. As a result, traders lowered expectations for additional monetary tightening by the U.S. Federal Reserve.

Interest-rate markets now imply roughly a 55% probability of a Fed rate hike in September, down from around 67% earlier this week. At the same time, softer U.S. Treasury yields and a relatively weaker U.S. dollar continued to support bullion by reducing the opportunity cost of holding non-yielding assets such as gold.

Despite the recent rally, investors remain cautious ahead of the next major economic catalyst. The latest ADP National Employment Report showed that private-sector hiring slowed in July, shifting attention to Friday's closely watched U.S. nonfarm payrolls (NFP) report, which is expected to provide fresh clues on the strength of the labor market and the Fed's policy outlook.

Analysts at ANZ noted that gold's advance accelerated after prices broke above a key technical resistance level, with improving geopolitical sentiment reinforcing expectations that inflation pressures may gradually ease. However, policymakers have continued to emphasize that monetary policy remains data dependent. Federal Reserve Governor Lisa Cook recently reiterated that officials are prepared to raise interest rates again if inflation fails to move convincingly toward the central bank's 2% target, highlighting that the fight against inflation is not yet complete.

Why It Matters for Traders

Gold is currently being influenced by two competing forces: easing geopolitical risk that could reduce inflation pressures and expectations for lower interest rates, versus the possibility that resilient U.S. economic data keeps the Federal Reserve on a restrictive policy path.

For traders, the upcoming U.S. nonfarm payrolls report, Treasury yield movements, and developments surrounding the Strait of Hormuz remain the key catalysts. A weaker-than-expected jobs report could strengthen expectations for a less aggressive Fed and provide further support for gold, while stronger employment data may lift the U.S. dollar and yields, potentially limiting bullion's recent gains.