Gold has recovered by 0.5 percent to $4,021.82 per ounce, regaining some of the 2.9 percent loss from Monday. Silver has increased by 0.1 percent to $57.70, while platinum and palladium have also gained.

The stabilization follows a sharp two-day decline triggered by the escalation of hostilities in the Middle East. Yesterday, President Trump renewed the blockade of Iran and demanded a 20 percent compensation for other cargo passing through the Strait of Hormuz amid ongoing exchanges of strikes between the parties. Oil prices and European natural gas have surged, amplifying inflation concerns and the risk of tightening monetary policy, which is a negative factor for gold, as it does not yield interest.

The monetary backdrop for the metal is also appearing concerning. Federal Reserve Governor Christopher Waller stated yesterday that the central bank may need to raise rates soon if core inflation continues to signal broad price pressures. The market probability of a quarter-point rate hike at the end of this month has risen to about 50 percent from less than 10 percent just recently. This marks a sharp reassessment of expectations in just a matter of days.

The extent of gold's decline this quarter remains a significant reminder of the correction's depth. This month, the metal's decline continued, following a 14 percent loss in the second quarter, the worst performance since 2013. The pressure is explained by growing expectations of Fed tightening amid a strengthening dollar and rising Treasury yields. Last week, the assets in gold-backed exchange-traded funds (ETFs) fell to their lowest level since September, further pressuring prices.

Despite all the negative macro factors, there are currently no signs of panic in the market. A picture is forming of a market at a crossroads between two opposing forces: short-term pressure from hawkish Fed expectations and geopolitical escalation on one side, and structural confidence among Asian investors in the long-term growth potential on the other. The inflation data and Warsh's speech expected later today will serve as a crucial test of which of these forces will prevail in the coming weeks.

Regarding the current technical picture for gold, buyers need to target the nearest resistance at $4,062. This will allow aiming for $4,124, above which breaking through will be quite problematic. The most distant target will be around $4,186. In the event of a decline, bears will try to take control of $4,008. If they succeed, a breakout from this range will deal a serious blow to the bulls' positions, pushing gold down to a low of $3,954, with the potential to reach $3,914.