Gold Rises Slightly Amid Middle East Tensions

Gold fell toward $4,000 an ounce on Thursday, resuming its decline as escalating attacks in the Middle East pushed oil prices sharply higher this week, reviving concerns about inflation and the outlook for interest rates. The US carried out additional strikes against Iranian targets on Wednesday, though President Donald Trump said Tehran had signaled a willingness to resume negotiations. Meanwhile, the precious metal found some support from softer US inflation data, which eased concerns over a near-term Federal Reserve rate hike. Data released on Wednesday showed US producer prices unexpectedly declined in June for the first time in nearly a year, largely due to lower energy costs, following Tuesday’s weaker-than-expected consumer inflation report. However, June’s inflation figures did not reflect the impact of the latest escalation in the US-Iran conflict, as the interim peace agreement reached last month has effectively unraveled.

Gold steadied around $4,050 an ounce on Thursday, trading in a narrow range for a second straight session as investors evaluated the Federal Reserve's policy outlook following softer US inflation data and escalating conflict in the Middle East. Data released on Wednesday showed US producer prices unexpectedly fell in June for the first time in nearly a year, driven by lower energy costs, while core PPI rose a softer-than-expected 0.2%. The report followed Tuesday’s weaker consumer inflation data, reducing concerns that the Fed would soon raise interest rates. Markets also scaled back expectations for a Fed rate hike in September, with the implied probability falling to around 44% from 50% a day earlier. Still, June’s inflation data did not capture the impact of the latest escalation in hostilities between the US and Iran, as the interim peace agreement reached last month has effectively unraveled.

Gold prices recovered earlier losses to trade slightly higher at $4,070 per ounce on Wednesday, as weaker US inflation data offset concerns over escalating tensions in the Middle East. US producer prices unexpectedly declined in June for the first time in nearly a year, weighed down by lower energy costs, while core PPI increased by a softer-than-expected 0.2%. The data followed Tuesday's weaker consumer inflation report, leading investors to reduce expectations for additional Federal Reserve tightening. However, markets still see roughly a 49% chance of a September rate hike as higher oil prices, driven by the ongoing US strikes on Iran, the reimposition of a naval blockade on Iranian ports, and the closure of the Strait of Hormuz by Tehran, continue to pose upside risks to inflation. Fed Chair Kevin Warsh also reaffirmed that the central bank has "no tolerance" for persistently elevated inflation.