Gold prices stabilize after a plunge, investors weigh Federal Reserve policy outlook against Middle East geopolitical risks!

On Tuesday, spot gold finally rebounded after a sharp sell-off earlier this week. This rally is a corrective rally, and the market's overall logic still revolves around expectations of further Fed rate hikes On Monday, precious metal prices plunged nearly 4%, dropping to a low of $4,110, marking the lowest level since August 5. The decline was driven by U.S. Treasury yields climbing to multi-year highs, increasing the opportunity cost of holding interest-free gold. The yield on the U.S. 10-year benchmark Treasury remained around 5.23%, slightly below Monday's 5.27%, the highest level since 2007. The recent bond sell-off was largely driven by rising inflation concerns; The standoff between the U.S. and Iran over the Strait of Hormuz pushed oil prices higher.

The latest news shows that Iran's Foreign Minister stated that Tehran is holding indirect negotiations with the U.S. in New York through a Qatari mediator. Iran is awaiting a formal response from the U.S. regarding its proposal to resume navigation in the Strait of Hormuz. Meanwhile, U.S. President Trump denied reports that the U.S. government proposed a plan to lift sanctions and unfreeze frozen assets to Iran. Trump stated that the U.S. has not made any concessions to Iran to end the conflict.

The two sides still have significant differences on core issues, and Iran has emphasized that it will not lower its negotiation terms. The conflict has entered its eighth month, with limited progress in negotiations, meaning disturbances around the Strait of Hormuz may continue for a long time. Against this backdrop, the market expects the Fed to continue raising rates after raising rates by 25 basis points earlier this month. According to the CME FedWatch tool, market pricing shows about a 72% chance of another rate hike in October.

A stronger dollar will raise the cost for holders of other currencies to buy gold. U.S. economic data released on Tuesday fell short of expectations. The September consumer confidence index fell to 81.9, below the market expectation of 89.0; the August data was also revised down from 89.4 to 88.6. Additionally, August JOLTS job openings fell to 7.079 million, below the market expectation of 7.23 million; the previous value was revised up from 7.271 million to 7.335 million.

Market Insight:

For gold to rebound and hold above $4,220, major macro news is often needed, at least partially offsetting the downward pressure on gold prices caused by rising US Treasury yields and a stronger dollar. Next, the market will focus on the Personal Consumption Expenditures (PCE) price index, ISM manufacturing PMI, and the nonfarm payroll report, seeking clues about the Fed's next policy moves.