Gold Rises as Dollar Weakens Ahead of Key Data

Gold rose above $4,390 an ounce on Wednesday, supported by a weaker US dollar as investors assessed renewed inflation risks from escalating Middle East tensions and awaited key US inflation data for clues on the Federal Reserve’s policy outlook. The dollar slipped to a four-month low, with investors looking ahead to producer-price data due Thursday and the consumer price index on Friday. The releases could provide the final major input into expectations for the Fed’s policy decision on September 16. Meanwhile, oil prices surged to their highest level in more than three months as US-Iran tensions intensified. Iran’s Revolutionary Guard said it had fired ballistic missiles at a US-used military base in Jordan and attacked 10 ships on Wednesday, after Washington said it had destroyed five Iranian oil tankers. Markets are now pricing in around a 60% chance of a Fed rate hike at next week’s policy meeting.

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.