Gold traded above $4,400 per troy ounce on Monday, supported by a weaker US dollar and heightened geopolitical tensions in the Middle East. The US Dollar Index slipped to its lowest in two months, holding below the 100 mark, as a run of disappointing economic data reduced expectations of further Federal Reserve rate hikes.
Dollar weakness driven by soft US data
The US Dollar Index (DXY) began the week on the back foot, staying below 100.00 after a series of underwhelming US releases on jobs, inflation and retail sales during August. Those figures have steadily trimmed bets that the Federal Reserve will raise interest rates at its next meeting. A Reuters poll conducted between August 12 and 17 found that a large majority of economists expect the Fed to keep rates unchanged in September and for the rest of the year.
The softer dollar has given a lift to several major currency pairs. EUR/USD held gains near 1.1580 after retreating from two-month highs around 1.1614. Sterling also firmed, with GBP/USD trading in the mid-1.3500s, close to three-month highs ahead of Tuesday’s UK jobs report. The Australian dollar led the majors, with AUD/USD in the low-0.7100s, despite weekend data showing a slowdown in Chinese industrial production and retail sales.
Geopolitical risks lift oil and underpin gold
Renewed tensions in the Middle East added to gold’s appeal as a safe haven. A senior Iranian official said Tehran is shifting to a “fully offensive” stance and warned of escalation in the Strait of Hormuz if diplomacy fails. The comments sent West Texas Intermediate crude oil more than 2% higher, toward $84 per barrel, and kept a firm bid under gold. Rising oil prices also stoke inflation concerns, which in theory could cap gold’s gains, but for now the combination of a weaker dollar and geopolitical risk has driven the metal higher.
Gold’s rally extended back above $4,400, remaining within striking distance of its highest level since early June. The non-yielding bullion benefits when the dollar falls and when investors seek protection from uncertainty. For the latest price, see the live gold price page.
Currency market overview
USD/JPY treaded water around 159.00 after a soft Japanese second-quarter GDP print that markets largely looked past. The US dollar was strongest against the Japanese yen among the major currencies on Monday. Meanwhile, the New Zealand dollar will be in focus later in the week when second-quarter producer price index data are released.
Tuesday brings a busy data calendar. In Europe, the UK labour market report is the main event, with the Bank of England watching average earnings figures closely. The ILO unemployment rate is expected to edge down. German and eurozone ZEW sentiment surveys are also due, alongside a scheduled speech from European Central Bank board member Philip Lane. In the US, building permits, housing starts, industrial production and pending home sales will offer a fresh read on the world’s largest economy.
Key takeaways
- The US Dollar Index slipped to two-month lows and held below 100.00.
- Gold traded above $4,400, supported by dollar weakness and Middle East tensions.
- Weak US jobs, inflation and retail sales data have reduced expectations of a Fed rate hike in September.
- Iranian threats to escalate in the Strait of Hormuz sent crude oil more than 2% higher and boosted safe-haven demand.
Common questions
Why is gold rising?
Gold is benefiting from a combination of a weaker US dollar and increased geopolitical risk. The dollar fell to two-month lows after a run of soft US economic data reduced the likelihood of further Federal Reserve rate increases. At the same time, threats from Iran over the Strait of Hormuz pushed oil prices higher and reinforced demand for safe-haven assets such as gold.
Gold’s rally above $4,400 reflects these twin drivers, though rising oil prices also keep inflation concerns alive, which could eventually limit further gains. Investors are watching upcoming US data and developments in the Middle East for direction.