Gold Steadies on Iran Diplomacy Hopes Amid Hawkish Fed Outlook
The gold price steadied on Tuesday after intraday declines as traders weighed fresh Middle East headlines and geopolitical tensions. Iran offered to reopen the Strait of Hormuz within seven days if the US lifts its blockade of Iranian ports and eases military pressure, according to Kyodo News.
This development led to a reversal in the US Dollar's gains, helping gold regain some ground. Oil prices extended their decline for a fifth straight day. The US Dollar Index (DXY) traded around 100.40 after retreating from an intraday high of 100.67, its highest level since July 30.
The main headwind for gold remains the hawkish Federal Reserve policy outlook, which could limit a stronger recovery unless the Strait of Hormuz reopens and triggers a meaningful decline in oil prices and inflation concerns. The Fed delivered its first interest-rate hike in three years last week, raising the federal funds rate by 25 basis points to 3.75%-4.00%.
According to Brown Brothers Harriman, Fed communication remains firmly tilted toward further tightening. St. Louis Fed President Alberto Musalem argued that additional rate hikes may be needed to curb inflation, while Chicago Fed President Austan Goolsbee cautioned that policy could become 'more aggressive and more front-loaded' if demand is seen overheating.