Gold prices recovered on Tuesday from their lowest level in more than a month during the previous session, but gains remained limited by rising oil prices, which kept inflation fears alive and cast a shadow over expectations for US interest rates.
The price of gold in spot trading rose 0.4% to $4,541.13 an ounce, after having fallen by more than 2% in the previous session to its lowest level since March 31.
US gold futures for June delivery also rose 0.3% to $4,547.20.
Ilya Spivak, head of global macroeconomics at TestLife, said prices appeared to be relatively stable after a wave of war trading that sent gold tumbling on Monday.
But the gains later faded, as Spivak noted that rising bond yields and a stronger dollar, supported by a surge in crude oil prices, had heightened inflation fears, negatively impacting gold, which does not yield returns, despite being considered a safe haven from paper currencies, according to Reuters.
The dollar rose, while Brent crude hovered above $113 a barrel, as the United States and Iran continued efforts to reach a truce, while strikes continued to be exchanged across the Strait of Hormuz.
A stronger US dollar makes dollar-denominated metals more expensive for holders of other currencies. Rising oil prices could also fuel inflation, increasing the likelihood of higher interest rates. While gold is often used as a hedge against inflation, higher interest rates make yield-generating assets more attractive, thus reducing demand for gold.
Traders are now largely ruling out a Federal Reserve interest rate cut this year, with markets currently showing a 37% probability of a rate hike by March 2027, compared to a 27% probability of a cut a week ago.
In a field escalation, the United States and Iran launched new attacks in the Gulf on Monday, as part of their struggle to control the Strait of Hormuz through a naval blockade, shaking the fragile truce.
The U.S. military said it destroyed six small Iranian boats and intercepted cruise missiles and drones launched from Tehran, as the Islamic Republic sought to thwart a new U.S. naval effort to open the Strait of Hormuz.
Investors are awaiting a series of important US data releases this week, including job vacancies data, the ADP employment report, and the April jobs report.
