Gold prices pushed higher on Tuesday, recovering from two-week lows as investors bought the dip ahead of key United States inflation data and Federal Reserve Chair Kevin Warsh's first congressional testimony, while ongoing conflict in the Middle East continued to fan inflation fears and pressure safe-haven assets.
By 3:55 pm AEST (5:55 am GMT), spot gold was up 0.7% at US$4,031.47 an ounce after briefly falling below the US$4,000 level in the previous session.
The rebound followed a modest pullback in the U.S. dollar as traders took profits ahead of the release of the June consumer price index (CPI) and Warsh's appearance before the House Financial Services Committee.
Despite the recovery, gains in bullion remained restrained as escalating tensions between the United States and Iran drove oil prices sharply higher, fuelling concerns that renewed energy inflation could strengthen the case for further interest rate increases.
Markets have also increased expectations that the Federal Reserve could deliver a rate hike in September if inflation remains persistent.
Geopolitical risks remained elevated after the U.S. Central Command (CENTCOM) confirmed that "U.S. forces completed new strikes on Iranian military targets".
“During the five-hour mission, U.S. forces successfully struck military targets across Iran including Bushehr, Chah Bahar, Jask, Konarak, Abu Musa, and Bandar Abbas to further degrade Iran's ability to attack commercial shipping.”
Earlier, the United Arab Emirates Ministry of Defence said two UAE-flagged oil tankers, the Mombasa and Al Bahiyah, were struck by Iranian cruise missiles while transiting the southern shipping lane of the Strait of Hormuz in Omani territorial waters, according to Reuters.
Investors will now turn their attention to the June U.S. CPI report and Warsh's testimony before Congress for further clues on the inflation outlook and the Federal Reserve's policy path.
A stronger-than-expected underlying inflation reading, combined with hawkish comments from the new Fed Chair, could weigh further on gold by reinforcing expectations that interest rates will remain higher for longer.
