Gold rose 1.0% to $4,397.47 an ounce on Wednesday alongside a softer dollar and escalating Iran-U.S. attacks, even as traders raised bets on a Federal Reserve rate hike next week. Friday's U.S. CPI report now stands as the next catalyst for its direction.
Gold climbed on Wednesday alongside a weaker U.S. dollar and intensifying Middle East violence. At the same time, traders raised the odds of a Federal Reserve rate hike next week, a shift that has capped the metal's gains.
Weaker dollar and Mideast escalation coincide with the move
By 05:25 ET, spot gold had risen 1.0% to $4,397.47 an ounce, while gold futures inched up 0.1% to $4,441.86 an ounce. The U.S. dollar index was mostly unchanged at 98.77, with analysts pointing to recent strength in the Japanese yen as the driver behind the greenback's relative weakness.
Iran and the U.S. have exchanged a fresh round of attacks in the Middle East, denting hopes for an end to the six-month-old conflict. Brent crude futures again topped $100 a barrel, underlining worries over energy supply through the Strait of Hormuz.
Rate-hike odds climb ahead of the Fed
Higher oil prices threaten to add to inflation pressure just as the Fed weighs its next move. Markets are now pricing roughly a 60% chance of a 25 basis-point rate hike next Wednesday, up from 40% a week earlier, as signs of resilience in the labor market appear to bolster the case for tighter policy. A rate hike raises the opportunity cost of holding gold, which pays no yield.
Gold had surged nearly 10% in August, its best monthly gain since January. Rick Kanda, managing director at The Gold Bullion Company, said gold could revisit its late-August peak of $4,685 an ounce, though according to Kanda: "considerable fluctuations along the way" remain likely.
Friday's CPI report is the next test
Its price action has been mildly negative since Friday, after a strong U.S. non-farm payrolls report revived Fed rate-hike bets and lifted real yields. A soft or in-line CPI reading on Friday would likely boost gold, since Fed's Waller has said he would not consider a hike without a hot print. A hotter-than-expected core reading, however, would likely trigger another selloff on stronger rate-hike bets.
On the daily chart, gold has rebounded off its 200-day moving average near 4,340 and surpassed 4,400, with the short-term downtrend line near 4,420 now the next resistance. A sustained breakout above 4,443 would raise the odds of further gains, while a pullback risks a slide back toward the 4,340 support level.
Sources: Commodities & Futures News, Investinglive RSS Breaking News Feed, Commodities Analysis & Opinion
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