Despite positive inflation data, investors remain cautious regarding the potential impact of renewed geopolitical tensions on global energy prices.
President Donald Trump abandoned his proposal to impose a 20% fee on cargoes transiting the Strait of Hormuz less than a day after unveiling the plan, although Washington maintained its naval blockade of Iranian shipping and continued military strikes targeting Iran’s ability to disrupt commercial traffic.
Meanwhile, remained elevated after recent gains, with trading above $85 a barrel and WTI near $79, keeping alive concerns that renewed increases in energy costs could eventually feed back into inflation.
Investors will also monitor U.S. producer price data later this week for further evidence on inflation trends, as markets continue to assess whether easing price pressures can outweigh lingering geopolitical risks and the Fed’s cautious policy stance.
held on to most of Tuesday’s gains after U.S. consumer prices unexpectedly declined in June, marking the first monthly drop in inflation in six years and prompting investors to sharply scale back expectations of a near-term interest rate increase.
The softer inflation reading triggered a broad rally in U.S. government bonds and weighed on the dollar, improving sentiment toward precious metals.
Traders sharply pared expectations for a July rate increase after the softer inflation report, with CME FedWatch showing markets now price a 16.6% chance of a 25-basis-point hike at the Fed’s July 28-29 meeting, down from 41.0% a day earlier.
However, enthusiasm faded after Fed Chair Kevin Warsh reiterated that bringing inflation back to the central bank’s 2% target remains the priority, indicating policymakers remain prepared to tighten policy further if price pressures reaccelerate.
On Wednesday, gold futures, after opening the day at $4,059.20, tested the day’s high at $4,068.65, and day’s low at $4,031.35, gold futures are trading at $4,032.12, just trying to hold the key support at $4,030, where a breakdown could accelerate selling spree to push the futures towards the next key supports at $3,890, 3,838 and 3,770 this week as the renewed conflict kept oil prices elevated and inflation risks in focus, tempering appetite for risk-sensitive Asian assets.
President Donald Trump said the United States would continue military strikes on Iran until Tehran agreed to a deal, while U.S. Central Command confirmed a fourth consecutive day of operations targeting Iranian military assets linked to threats against commercial shipping in the Strait of Hormuz.
On the other hand, the steadied near 100.8 points in Asian trade after posting its biggest one-day decline in weeks, as investors weighed easing U.S. price pressures against the risk that higher oil prices could rekindle inflation if tensions in the Middle East persist.
Still, declines in the dollar were limited by Federal Reserve Chair Kevin Warsh reiterating the bank’s commitment to aggressively pursue its 2% annual inflation target– a trend that could still herald interest rate hikes later this year.
On Wednesday, attention shifts to U.S. producer price inflation, set to be announced today, after weaker-than-expected consumer price data tempered expectations for another near-term Federal Reserve rate hike, with investors assessing whether the dollar’s recent pullback has further room to run.
I conclude that overstretching of the Strait of Hormuz is set to generate food crises, as elevated oil prices will elevate cost of fertilizers and the dependence of thickly populated country like India and China, where the farmers mostly depend on imported fertilizer will not get desired result due to exacerbated energy-driven inflation set to trigger food inflation, which will be felt globally, as most of the developed countries depend on food, imported from the developing countries.
At the same time, China’s economy grew less than expected in the second quarter of 2026, as sluggish domestic demand offset support from strong exports, while also underscoring a growing imbalance in the country.
Gross domestic product grew 4.3% in the April-June quarter, data from the National Bureau of Statistics showed on Wednesday. The print was weaker than the 4.5% expectation and slowed sharply from the 5.0% growth seen in the first quarter.
GDP also grew at its slowest pace since the fourth quarter of 2022, which could extend bearish pressure on precious metals this year.
Undoubtedly, amid such a scenario, gold futures could test fresh lows through July 20, 2026.
Disclaimer: Readers are advised to take any position in gold and oil at their own risk, as this analysis is based solely on observations.
