Gold Price Falters Under US Dollar Pressure Amid Rising Rate Hike Bets

The gold price is struggling to maintain its upward momentum as it faces challenges from sellers returning to the market. Gold prices are trading at around $4,431.95 after failing to hold onto gains from Monday's recovery from eight-day lows of $4,397.

The US Dollar has rebounded sharply in a risk-off market environment, driven by increased bets on a September Federal Reserve interest rate hike, which now stand at 66% according to the CME Group's FedWatch Tool. This is up from 41% just last week.

Additionally, the Middle East tensions have revived the geopolitical risk premium among traders, supporting the safe-haven appeal of the US Dollar and acting as a headwind for gold. The renewed hostilities in the region have also led to a threat of further strikes against Iran by US President Donald Trump.

The upcoming US labor market data releases this week will be closely watched by gold traders for fresh hints on the Fed's monetary policy outlook. Analysts at ING note that gold is likely to remain sensitive to incoming US inflation and labour market data, with central bank buying and geopolitical risks providing underlying support.