Gold eases amid firm US Dollar as CPI and Hormuz risks loom

Gold prices experienced slight declines on Tuesday, as a strong US Dollar and concerns over potential reopening of the Strait of Hormuz kept the yellow metal in check. The XAU/USD pair traded at $4,381, marking a 0.18% decrease since the day's high of $4,435. The economic calendar remained relatively light, although the ADP Employment Change 4-week average revealed a slowdown in the job market, registering an 8.25K increase compared to the previous revision of 11K.

Other data pointed to a further drop in Existing Home Sales for July, decreasing by 1.7% to 4.06 million, due to higher mortgage rates caused by the Middle East conflict and surging home prices. The 30-year fixed-rate mortgage rose by over 71 basis points, now at 6.69%.

On Wednesday, the US economic calendar will focus on the release of the US Consumer Price Index (CPI), with forecasts predicting a YoY inflation rate of 3.4%, a tenth lower than the previous June's 4.4%. Core CPI is also expected to decline to 2.5% YoY. Following the CPI, traders will be closely watching the US Producer Price Index (PPI) and jobless claims reports.

Federal Reserve Chair Austan Goolsbee emphasized that inflation is the primary issue facing the economy, as opposed to job losses and industry decline. The US Dollar Index (DXY), which tracks the dollar's performance against a basket of six currencies, remained level at 99.82. US Treasury yields, which typically move inversely to gold prices, decreased by two basis points, settling at 4.687%.

Geopolitical tensions persist, as the Secretary of Iran's Supreme National Security Council suggested the Strait of Hormuz would remain closed until the US alters its stance and accepts Iran's demands. Gold prices appeared to be stabilizing after two days of bullish activity, reaching above the $4,350 threshold. Momentum, indicated by the Relative Strength Index (RSI), showed signs of weakening, implying that gold may trade within a narrow range in the near future.

For a potential bounce back, gold needs to surpass the 100-day Simple Moving Average (SMA) of $4,389, followed by the $4,400 psychological level, then the 200-day SMA at $4,498, and finally the $4,500 milestone. A break below the July 6 high of $4,202 would trigger support at the 50-day SMA of $4,150 and the $4,100 level. Gold has historically served as a store of value, a medium of exchange, and a safe-haven asset during unstable times.

Central banks have been the largest gold holders, diversifying their reserves by purchasing gold to bolster economic and currency strength.