Gold Prices Steady as Hormuz Tensions Counter Hawkish Fed Outlook

Gold prices were little changed on Friday, caught between safe-haven demand spurred by renewed geopolitical tensions in the Middle East and concerns that resulting inflationary pressures could force the U.S. Federal Reserve to maintain a hawkish monetary policy.

At 20:35 ET (00:35 GMT), spot gold edged up 0.03% to $4,242.07 an ounce, while gold futures traded flat at $4,300.26, according to Investing.com data.

Geopolitical Risks Stoke Uncertainty

Prices are being supported by fresh escalations in the Strait of Hormuz. Iranian media reported that Tehran had struck what it called "hostile targets" and intended to block U.S. and Israeli ships from the critical shipping lane. Separately, Yemen's Houthi movement claimed responsibility for an attack on Saudi-backed forces, raising fears of a wider regional conflict.

While these developments typically boost gold's appeal as a safe-haven asset, they also risk driving energy prices higher. This could complicate the Federal Reserve's inflation fight and strengthen the case for keeping interest rates elevated, a scenario that typically weighs on non-yielding bullion.

Fed Policy and Jobs Data in Focus

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Markets are increasingly pricing in the possibility of further monetary tightening. The probability of a September rate hike now stands at roughly 60%, according to the source, following a Financial Times report that Fed Chair Kevin Warsh is prepared to raise rates if inflation remains high.

Adding to the hawkish sentiment, St. Louis Fed President Alberto Musalem stated that policymakers cannot tolerate persistent inflation. Investors are now awaiting Friday's U.S. nonfarm payrolls report, which will be a critical data point for gauging the health of the labor market and influencing the Fed's next policy decision.

Market Backdrop

Despite macroeconomic headwinds, gold prices have found a floor of support from strong physical demand. Gold-backed exchange-traded funds (ETFs) in China have recorded 14 consecutive sessions of inflows, signaling robust investment interest.

From a technical perspective, the recent price action suggests gold may have established a bottom near its late-June low around $3,942, according to Tony Sycamore, a senior market analyst at IG. He noted that the next major resistance level is the 200-day moving average near $4,489, and the outcome of the payrolls report will likely determine the metal's next directional move.