Gold Prices Retreat as US Dollar Rebound Catches Markets Off Guard
Gold prices eased back from their highest level since June 18th as the US dollar rebounded slightly. The greenback found support after Federal Reserve officials reiterated inflation risks, with markets still pricing in an around 80% chance of a rate hike by year-end.
The ADP report showed private payrolls growth of 40K in July, undershooting expectations and capping the move. As a result, the implied probability of a September rate hike fell to roughly 55% from 67%, with attention now on Friday's Nonfarm Payrolls.
Technically, gold has moved above its 50-day SMA for the first time since March 17th, with momentum indicators suggesting further upside potential. However, options traders are advised to exercise caution ahead of Friday's critical NFP report, as gold prices tend to experience significant swings following significant NFP surprises.
The potential diplomatic breakthrough between the US and Iran regarding the Strait of Hormuz could keep oil prices depressed, which traditionally dampens inflation fears. If negotiations succeed, a resulting dollar weakness is expected to push gold past its current resistance.