Brief Gold Market Overview

The modest recovery in gold prices was primarily supported by the decline in oil prices. Brent crude fell from $101 to $98 per barrel, while during the trading session it declined as low as $95 per barrel. The retreat in oil prices eased concerns about the inflationary pressure that had been driving expectations of higher-for-longer interest rates.

The chain reaction was therefore: the decline in oil prices reduced concerns about energy-driven inflation, which meant less pressure on central banks to maintain restrictive monetary policy, which reduced the downward pressure that interest-rate expectations had been placing on non-yielding gold, and gold received support as a result.

However, the decline in oil prices was not enough to generate a stronger recovery in gold. Expectations of higher interest rates remained elevated, with markets pricing in an 82% probability of a Federal Reserve rate hike in September. At the same time, rising Treasury yields continued to increase the opportunity cost of holding non-yielding gold.

Gold also received support from dip-buying and short covering following the sharp decline in the previous session. Meanwhile, investors remained focused on the Federal Reserve's policy meeting next week, which is expected to provide further signals about the future path of U.S. interest rates.

Overall, the decline in oil prices provided some relief from inflation and interest-rate concerns, while dip-buying and short covering supported gold. However, elevated yields and expectations of a September rate hike limited the recovery, resulting in gold rising only $4 during the trading session.