Gold Holds Steady Ahead of Key US Inflation Data

Gold prices traded cautiously around $4,400 an ounce on Tuesday, caught between rising bets on a Federal Reserve rate hike and a softer dollar ahead of key US inflation data later this week. A further rise in oil prices also renewed inflation concerns. Oil extended gains to multi-week highs amid escalating Middle East tensions after Yemen’s Iran-backed Houthis attacked energy facilities and cities in Saudi Arabia, a key US ally. Meanwhile, Friday’s stronger-than-expected jobs report pointed to a strengthening labor market, prompting traders to price in about a 60% chance of a Fed rate hike at the September meeting. While gold is traditionally viewed as a hedge against inflation, higher interest rates tend to weigh on the appeal of the non-yielding asset. Investors now await producer price data on Thursday and consumer price figures on Friday for further clues on the Fed’s policy outlook.

Gold slipped below $4,400 an ounce on Tuesday, extending losses from the previous session, pressured by expectations that major central banks will raise interest rates this month as elevated oil prices heighten inflation concerns. Markets are currently pricing in around a 60% probability that the US Federal Reserve will deliver a 25-basis-point rate hike next week following strong jobs data, with upcoming inflation figures expected to offer further clues. The European Central Bank and Bank of Japan are also widely expected to raise rates this month. Meanwhile, investors continued to monitor developments in the Middle East as renewed US-Iran fighting pushed oil prices higher. At the same time, gold could receive support from investment and hedging demand, with central bank purchases and the so-called debasement trade remaining key drivers for the precious metal.

Gold fell to around $4,400 an ounce on Monday, with trading volumes subdued due to a US holiday, after a stronger-than-expected US jobs report pushed bond yields higher and boosted expectations for a Federal Reserve rate hike this month. US nonfarm payrolls increased by 162,000 in August, well above market expectations for a 56,000 gain, while the unemployment rate held at 4.1%. Traders now see nearly a 60% chance of a rate hike at the Fed’s policy meeting next week, up from about 50% before Friday’s jobs data, according to the CME FedWatch Tool. Investors are now awaiting PPI and CPI data later this week for further clues on the Fed’s policy path. Inflation concerns remain elevated, with crude oil prices touching a near three-month high after the US and Iran exchanged strikes on shipping over the weekend. Meanwhile, China extended its gold-buying streak to a 22nd consecutive month in August, lifting its holdings to 76.73 million fine troy ounces.