Oil Price Rebound Boosts Gold and Silver Amid Inflation Risk Trade
Gold and silver prices are on the rise as traders reassess inflation risks in the market. This comes after last week's weak labor data, which initially pushed down expectations of a September Fed rate hike to 44.4%. However, with oil prices rebounding and Treasury yields firming up, the probability of a rate hike has climbed back to 51.7%.
The Strait of Hormuz remains a major geopolitical concern for inflation expectations. Iran's latest stance on compensation from the US has reduced optimism about a quick reopening of tanker flows through the strait, causing oil prices to rise. This, in turn, has boosted Treasury yields and gold prices have held their ground despite a stronger rate backdrop.
The current market positioning is defined by the collision between Friday's payroll shock and Monday's oil-driven inflation risk. The upcoming key data releases include July CPI on Wednesday, PPI on Thursday, and retail sales on Friday. These will provide further insight into the trajectory of inflation expectations and interest rates.