On Tuesday (October 20), spot gold prices fell and spot silver prices fluctuated wildly during the early US trading session. The weaker-than-expected performance of the US housing market highlighted the impact of high borrowing costs on the US economy; however, rising oil prices and persistently high inflation led the market to still bet on further tightening of monetary policy by the Federal Reserve. The latest housing data somewhat alleviated inflation concerns weighing on precious metals, but renewed tensions in the Strait of Hormuz limited market expectations for interest rate cuts. In early trading, spot gold was trading at approximately $4,126.87 per ounce, down 0.33%; spot silver was trading at approximately $57.391, up 0.52%. U.S. housing construction data weakened in September, further demonstrating that high mortgage rates are suppressing investment in the residential sector. New home starts fell 7.4% year-over-year. Single-family home starts declined 4.6%, equivalent to 859,000 units per year; building permits slipped slightly by 0.2% to 1.4 million units, revised from 1.403 million units in August. Single-family home building permits fell 4.0% to 845,000 units. Earlier on Monday, the National Association of Home Builders (NAHB) Housing Market Index fell from 32 to 29, its lowest level since June 2012. Rising mortgage rates, increased construction costs, and cooling demand have severely impacted builder confidence. The latest data further confirms that the tightening financial environment is having an increasingly significant impact on interest rate-sensitive economic sectors. Market sentiment is significantly divided: on the one hand, economic activity is weakening, while on the other hand, inflationary pressures remain stubborn. In September, U.S. consumer prices rose 0.6% month-over-month and 3.7% year-over-year; producer prices rose 1.3% month-over-month and 6.3% year-over-year. Inflation data exceeded expectations, leading traders to anticipate the Federal Reserve will keep interest rates unchanged at its October 27-28 policy meeting. The futures market indicated an 82.8% probability of maintaining rates and a 17.2% probability of a 25 basis point rate hike. However, the market is still pricing in a 93.6% probability of a rate hike by the December 9 meeting. Tuesday's housing data added to the evidence for keeping rates unchanged in October, but given persistently high energy prices, this data alone is unlikely to reverse market expectations for a December rate hike. The benchmark 10-year Treasury yield hovered around 5.1%, having risen to 5.13% on Monday; the dollar index weakened slightly overnight, after strengthening in the previous trading day. The Fed is currently in its pre-meeting communication quiet period, making the latest economic data the primary basis for judging the direction of monetary policy. Tuesday's economic agenda includes the release of the September pending home sales index at 10:00 AM ET. Initial jobless claims for the week will be released at 8:30 AM Eastern Time on Thursday; preliminary October manufacturing and services purchasing managers' indices will be released at 9:45 AM on Friday; and the final University of Michigan consumer sentiment index will be released at 10:00 AM. If labor market and business activity data weaken further, it will reinforce concerns about an economic slowdown and weaken expectations for further interest rate hikes; declining US Treasury yields will support gold prices. Conversely, if inflation expectations remain high and economic data is better than expected, it will strengthen the case for the Federal Reserve to continue tightening policy, continuously putting pressure on precious metal prices. The Strait of Hormuz and the US-Iran situation remain major uncertainties in the energy market. Attacks on merchant ships and Saudi targets have caused crude oil prices to give back some of Monday's losses. Iran's threats to the safety of shipping in this strategic waterway and the Houthi resurgence of military operations have increased market concerns about the security of energy supplies in the Gulf region. Currently, oil transport through the Strait of Hormuz has recovered to 80%-82% of pre-conflict levels, but tanker transport remains disrupted, and the risk of further supply disruptions continues to push up geopolitical risk premiums. Iran maintains its claim to the Strait of Hormuz; negotiations between the US and Iran regarding sanctions lifting, maritime passage, and a comprehensive security framework have failed to reach a lasting agreement. Brent crude oil rose to a high of $111.94 per barrel, a new high since May, before falling back to $109.53; West Texas Intermediate (WTI) crude oil regained the $100 mark before falling back to $98.84 per barrel. The escalating situation has brought mixed effects to gold. Gulf geopolitical risks may boost safe-haven buying of gold; however, rising oil prices could exacerbate inflationary pressures and delay a shift towards looser US monetary policy. Tuesday's weak housing report reflected the cost of high borrowing costs to the economy, but oil-driven inflationary pressures continue to limit gold's upside potential. Silver also faces downward pressure from monetary policy, and its strong industrial attributes make it more sensitive to economic downturns. Gold Technical Analysis (Spot Gold Daily Chart Source: FX678) The next upside target for spot gold is to push the price back above the $4141.97-$4145.47 resistance zone; a successful break above this level would target $4199.08, followed by $4217.40. The short-term downside target for bears is a break below $4073.55, with deeper support at $4066.54, and then $3942.10. First resistance level: $4141.97, then $4145.47; first support level: $4073.55, then $4066.54. Silver Technical Analysis: The next upside target for spot silver is to push the price back above $57.390-$57.860; a break above this range would target $58.700, then $59.370. The downside target for the bears is a break below $56.920, with further downside targets at $56.340 and then $55.400. The first resistance level is $57.390, followed by $57.860; the first support level is $56.920, followed by $56.340.