Gold prices recovered strongly during Tuesday’s trading session after weaker-than-expected U.S. inflation data eased pressure on the Federal Reserve to raise interest rates further. A softer U.S. dollar, lower Treasury yields, and ongoing tensions in the Strait of Hormuz also supported demand for the precious metal.

U.S. CPI Comes in Below Expectations

The main driver behind gold’s recovery was the latest U.S. Consumer Price Index report.

Headline CPI fell by 0.4% month-on-month in June, marking its largest monthly decline since April 2020. Core CPI was unchanged from the previous month and rose by 2.6% year-on-year.

Following the report, markets lowered the probability of a Fed rate hike in July to around 15.5%, while the likelihood of rates remaining unchanged increased to approximately 84.5%.

Lower interest-rate expectations created a more favorable environment for gold, which does not generate interest income.

U.S. Dollar and Treasury Yields Decline

The yield on the U.S. 10-year Treasury note fell by approximately 3.7 basis points to around 4.58%. Meanwhile, the U.S. Dollar Index declined by 0.28% to trade near 100.95.

A weaker dollar makes gold more affordable for buyers using other currencies. At the same time, lower bond yields reduce the opportunity cost of holding the non-yielding precious metal.

Supported by these factors, spot gold rose approximately 1.32% to nearly $4,052.80 per ounce.

Strait of Hormuz Tensions Support Safe-Haven Demand

In addition to interest-rate expectations, escalating tensions between the United States and Iran in the Strait of Hormuz continued to support demand for safe-haven assets.

Shipping activity through the region has continued, but vessels are facing elevated military and maritime risks. This has helped maintain a geopolitical risk premium in both gold and crude oil prices.

However, the impact of higher oil prices on gold is two-sided. If oil prices continue to rise sharply, inflation concerns could return, potentially pushing Treasury yields higher and limiting gold’s upside momentum.

Key Technical Levels to Watch

From a technical perspective, gold has moved back above the $4,000-per-ounce level but continues to face resistance overhead.

The nearest resistance zone is located between $4,091 and $4,140 per ounce. A sustained break above this area could strengthen the bullish momentum.

On the downside, $4,021 per ounce is the nearest support level. If gold falls below $3,959 per ounce, selling pressure could increase, with further downside targets at $3,942 and $3,886 per ounce.

Conclusion

Gold’s recovery was mainly driven by three factors: cooling U.S. inflation, lower Treasury yields, and a weaker U.S. dollar. Tensions in the Strait of Hormuz also provided additional support through stronger safe-haven demand.

However, the bullish outlook still requires confirmation as gold approaches the key resistance zone between $4,091 and $4,140 per ounce. Markets will continue to monitor Fed rate expectations, movements in Treasury yields, and further developments in the Middle East.

Source: Kitco