Gold Steadies as Traders Weigh Fed Outlook

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.

Gold eased toward $4,000 an ounce on Wednesday, giving back part of the previous session’s gains as escalating tensions in the Middle East kept inflation and interest rate concerns at the forefront of investors' minds. The US launched another round of strikes against Iran while reinstating its naval blockade of Iranian ports near the Strait of Hormuz, raising fears of further disruptions to global energy supplies. Gold had surged more than 1% on Tuesday after softer-than-expected US inflation data prompted traders to scale back expectations for near-term Federal Reserve interest rate hikes. Meanwhile, Fed Chair Kevin Warsh reiterated the central bank’s commitment to restoring price stability during congressional testimony but stopped short of signaling a more hawkish policy stance. Even so, markets continue to price in roughly a 50% chance of a Fed rate hike in September.