Gold Rebounds as Yen Surge Weakens Dollar, Inflation Risks Cap Gains

Gold prices rose on Tuesday as the Japanese yen's sharp rally against the dollar weighed down the US currency, making gold cheaper for buyers using other currencies. The yen approached its strongest level of the year after extending a rally that began last week, with traders increasingly betting that the Bank of Japan will raise interest rates.

The move has also helped weaken the dollar, which normally has an inverse relationship with gold. A weaker greenback supports gold prices even as other parts of the macro backdrop remain challenging. Gold has remained in a relatively narrow range since rebounding from a floor near $4,000 in July.

However, gains are being limited by inflation risks linked to disruptions around the Strait of Hormuz. Oil prices rose after renewed U.S. and Iranian clashes, with oil approaching $100 a barrel. The immediate test will come from U.S. consumer price data later this week, which could determine whether the recent increase in rate hike expectations is sustained.