Gold Holds Near Seven-Week High as Hormuz Hopes Temper Fed Rate Hike Bets

Gold prices pared some earlier gains on Thursday but held firm near a seven-week high, as optimism surrounding a potential deal to reopen the Strait of Hormuz tempered expectations for further U.S. interest rate hikes.

By 12:57 AM ET (04:57 GMT), spot gold was up 0.4%, while gold futures also rose 0.4%. Other precious metals also gained, with spot silver adding 0.2% and platinum climbing 1.3%, according to Investing.com data.

Geopolitical Hopes Ease Inflation Fears

The primary driver for gold's recent strength is growing optimism over a potential resolution to the five-month conflict impacting the Strait of Hormuz. A Reuters report on a draft agreement that could grant Iran control over vessel passage has fueled hopes for a de-escalation, which in turn has put downward pressure on oil prices.

For gold investors, lower energy prices signal a potential easing of inflationary pressures. This reduces the impetus for the Federal Reserve to implement further monetary tightening, making non-yielding assets like gold more attractive. The move was further supported by a pullback in U.S. Treasury yields and a weaker dollar.

Ad

Fed Outlook and Upcoming Data

Reflecting this shift in sentiment, market pricing for a September rate hike has declined. The probability of another increase now stands at approximately 55%, down from about 67% earlier in the week, according to market data.

However, Fed officials remain cautious. Governor Lisa Cook warned this week that policymakers must be prepared to raise rates again if inflation does not cool sufficiently, stating the central bank cannot wait until the 2% target is reached before acting.

Investors are now squarely focused on upcoming U.S. labor market data for fresh clues on the Fed's policy path. Following a report from ADP that showed a slowdown in private sector hiring in July, the market's attention now turns to Friday's widely-watched nonfarm payrolls report.