Gold prices rallied sharply on Tuesday, rising by more than 1.50% during the North American session, with XAU/USD trading at $4,071. This surge was driven by ongoing missile strikes between the US and Iran, which have revived safe-haven demand for gold despite gains in both US Treasury yields and the US Dollar Index (DXY) [1]. The DXY itself extended gains, trading around 101.18 and reaching a one-week high as tensions between the US and Iran intensified, further boosting demand for the Greenback [2].
US President Donald Trump maintained a hard-line stance, stating at a White House press conference that he had 'no interest' in talks with Iran until Tehran was ready, and warned of potential strikes on Iranian nuclear sites and the Pickaxe Mountain area. The US military conducted its tenth consecutive night of strikes against Iran, while Iran launched attacks on US military assets across the region [2]. Newswires reported that the US is demanding a longer ceasefire and partial navigation in Hormuz, while Iran proposed a 10-day ceasefire. President Trump is considering whether to accept Iran’s proposal or escalate to a full-scale war, with a US official indicating that strikes could target Tehran and nuclear sites if the latter path is chosen [1].
Oil prices also rose as Ansar Allah threatened to attack vessels in the Red Sea, heightening fears of crude supply disruptions [1]. Analysts at ING noted that 'Dollar risks remain skewed to the upside today as markets continue to display a risky degree of complacency towards the military re-escalation,' and OCBC warned that a larger escalation could push oil prices above $100 per barrel, potentially triggering higher market volatility and supporting a renewed USD rally [2].
The rebound in oil prices is rekindling inflation concerns and supporting expectations that the Federal Reserve will maintain a tighter monetary policy stance or even raise interest rates. A Reuters poll showed all 104 economists expect the Fed to hold its benchmark rate at 3.50%-3.75% at its July 28-29 meeting, with 78 forecasting no change through year-end. However, 44 of 67 economists now see a high risk of a rate hike, a notable shift from last month [2]. Prime Terminal data indicates a 78% probability that the Fed will hold rates steady at next week’s meeting, while the likelihood of a September hike is about 68% [1].
Technically, gold is trading near five-day highs approaching $4,100, with short-term momentum moderately bullish. However, the broader trend remains downward unless gold clears resistance at $4,125, with further upside targets at $4,134 and $4,202. On the downside, a break below $4,000 could see gold test $3,959 and $3,900 [1]. The US 10-year Treasury yield rose by nearly 3.5 basis points to 4.628%, and the DXY advanced 0.12% to 101.11, with the US Dollar strongest against the British Pound, up 0.41% on the day [1][2].
CONCLUSION
Escalating US-Iran tensions and rising oil prices have driven both gold and the US Dollar higher, reflecting heightened safe-haven demand and inflation concerns. Market participants are increasingly expecting the Federal Reserve to maintain or even tighten monetary policy, while analysts warn of further volatility if the conflict escalates. The situation remains fluid, with significant market impact tied to geopolitical developments and central bank responses.