Gold retreats from $4,300 as Iranian strikes revive rate hike fears

Gold prices rallied to their highest level in seven weeks this week, briefly surpassing $4,300 an ounce, as a potential Iran-Oman agreement on reopening the Strait of Hormuz combined with soft US employment data to cool expectations of Federal Reserve rate hikes. But late-week Iranian strikes in the waterway tempered gains, leaving bullion trading in a narrow range near $4,245 heading into Friday's nonfarm payrolls report.

Diplomacy and Jobs Data Fuel the Rally

The precious metal jumped 4.1% on Wednesday — its biggest single-day gain since February — after Iran said it had reached an understanding with Oman on a proposed temporary shipping route through the strait. Iranian deputy foreign minister Kazem Gharibabadi told domestic media the corridor would remain active for "two to four months" but cautioned it "does not mean the full reopening" of the waterway.startupfortune+1

The diplomatic progress sent oil prices lower, easing inflation concerns that have weighed on gold since the US-Iran conflict began in late February. Bullion has fallen nearly a fifth since the war started, as surging energy costs stoked inflationary pressures and raised the prospect of tighter monetary policy.businesstimes+1

Compounding the move, ADP data showed US private employers added only 44,000 jobs in July, well below the roughly 65,000 economists expected. Markets responded by pricing in just one Fed rate increase by year-end, down from two as recently as last week. The probability of a September hike fell to around 53-55%, from 67% earlier in the week.freemalaysiatoday+3

Escalation Caps Gains

The rally proved short-lived. Iranian media reported on Thursday that Tehran struck "hostile targets" in the strait and signaled it would bar US and Israeli vessels from passing through. Separately, Yemen's Houthi movement claimed a "large-scale" attack against Saudi-backed government forces, raising concerns about a broader regional conflict.investing+1

The escalation revived speculation that higher energy prices could keep inflation elevated and strengthen the case for tighter Fed policy. The Financial Times London Stock Exchange reported that Fed Chairman Kevin Warsh would be prepared to raise borrowing costs if inflation readings run hot in coming weeks, while St. Louis Fed President Alberto Musalem said policymakers "cannot afford to tolerate higher inflation".businesstimes+1

Despite the renewed tensions, President Donald Trump told reporters Thursday that he believes the war will end "pretty soon" and that the US remains in control of the strait.businesstimes

What Comes Next

TD Securities analysts noted that "macro discretionary funds have more than doubled their positions since June," though they cautioned that "a still extremely tight energy market will remain a major hurdle for a renewed bull run". Gold-backed exchange-traded funds in China have recorded 14 consecutive sessions of inflows, providing additional support.freemalaysiatoday+1

Attention now turns to Friday's US nonfarm payrolls report, which analysts say will determine whether gold's breakout develops into a durable advance or loses momentum.investing