Gold Rises as Dollar Weakens

Gold climbed above $4,400 an ounce on Wednesday, ending a three-session decline as the weakening dollar made the greenback-priced metal more affordable for buyers using other currencies. The dollar’s weakness was largely driven by the Japanese yen’s sharp appreciation this month, along with cautious investor positioning ahead of several major central bank decisions. The US Federal Reserve, European Central Bank and Bank of Japan are all expected to raise interest rates this month. Investors are also awaiting key US inflation data this week for additional clues on the Fed’s policy outlook. Meanwhile, oil prices continued to advance amid escalating Middle East tensions, increasing inflation concerns and strengthening expectations for rate hikes. While gold is traditionally viewed as a hedge against inflation, higher interest rates can weigh on demand for the non-yielding asset by making interest-bearing investments more attractive.

Gold held below $4,400 an ounce on Wednesday after sliding for two straight sessions, pressured by rising oil prices that heightened inflation concerns and strengthened expectations for interest rate hikes. Oil prices continued to climb after US forces destroyed five Iranian crude tankers near Kharg Island, the country’s main oil export hub, in retaliation for attempted missile attacks on a US warship. Investors also braced for key US inflation readings this week for further signals on the Federal Reserve’s next policy move. Markets are currently pricing in roughly a 60% chance of a 25-basis-point rate hike next week. Although gold is widely considered a hedge against inflation, higher interest rates can reduce demand for the non-yielding asset by increasing the appeal of interest-bearing investments. Meanwhile, gold posted strong gains in August, supported by increased investment and hedging demand, along with continued central bank purchases, particularly from China.

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.