Gold posts cautious gains ahead of key US economic data

Gold prices edged higher during European trading on Tuesday, extending gains for a second consecutive session. However, the upside remained limited as uncertainty continued to surround peace negotiations between the United States and Iran.

Investors are closely watching a series of key US economic releases scheduled throughout the week, which are expected to provide clearer signals on the outlook for Federal Reserve monetary policy and the timing of any future interest rate moves.

The Price

• Gold rose about 0.45% to $4,072.94 per ounce from the opening level of $4,055.21, after touching an intraday low of $4,042.72.

• At Monday's close, gold gained 0.3%, marking its third advance in the past four sessions, supported by easing US-Iran tensions.

US dollar

The US Dollar Index slipped more than 0.1% on Tuesday, moving back toward a seven-week low of 99.42 as the greenback weakened against a basket of major currencies.

The decline comes amid softer safe-haven demand for the US dollar and ahead of important US labor market data that could provide crucial clues about the likelihood of further Federal Reserve rate hikes this year.

Oil prices

Oil prices rose more than 2% on Tuesday in a technical rebound after plunging more than 7% on Monday, following the suspension of military strikes between the United States and Iran and the start of talks aimed at resolving the Strait of Hormuz crisis.

Developments in the Iran conflict

• Diplomatic efforts remain underway to reach a new agreement that would preserve the halt in military strikes between the United States and Iran.

• US President Donald Trump postponed a large-scale military strike against Iran to allow more time for diplomacy.

• Trump confirmed that negotiations with Iran had begun, describing them as the "last chance" to avoid further military escalation.

• Tehran denied holding direct negotiations with the United States, stating that ongoing contacts are limited to Oman and focus solely on maritime security in the Strait of Hormuz.

• Regional mediation efforts continue in search of a mechanism to restore normal shipping through the strategic waterway, although no final agreement has yet been announced.

US interest rates

• New York Federal Reserve President John Williams said he remains optimistic that inflation is on track to gradually ease. However, he stressed that if inflation fails to decline, the Federal Reserve will not hesitate to respond by raising interest rates.

• According to CME Group's FedWatch Tool, markets currently assign a 35% probability that the Federal Reserve will leave interest rates unchanged at its September meeting, while the probability of a 25-basis-point rate hike stands at 65%.

• For the December meeting, markets price a 14% probability of no change in interest rates and an 86% probability of a 25-basis-point increase.

• Investors will continue to monitor incoming US economic data and comments from Federal Reserve officials to reassess the outlook for monetary policy.

• A busy week of US labor market data continues, with June JOLTS job openings due later on Tuesday, July ADP private payrolls on Wednesday, weekly jobless claims on Thursday, and the July nonfarm payrolls report on Friday.

Economic Outlook

We expect gold to remain supported at the start of the week, although gains are likely to stay limited as uncertainty continues to dominate markets over the progress of US-Iran peace talks.

If negotiations are officially confirmed and meaningful progress is made toward a new agreement, further weakness in both the US dollar and oil prices could provide additional support for gold and other precious metals.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by 1.15 metric tons on Monday, marking a third consecutive daily decline and bringing total holdings to 1,005.87 metric tons, the lowest level since July 17.