Spot gold climbed to $4,397 per troy ounce on Friday, securing a second consecutive weekly gain and extending its August rally to 9%. The advance follows softer-than-expected United States inflation data, which pushed the US dollar lower and tempered expectations of an interest rate increase by the Federal Reserve next month.
Cooling inflation shifts central bank expectations
The latest US Consumer Price Index showed annual inflation at 3.4%, coming in below the anticipated 3.5%. Combined with weaker employment figures reported earlier in the month, the data suggests price pressures in the US economy are moderating. As a result, financial markets have adjusted their monetary policy outlook.
Money markets are now pricing in approximately a 35% probability of a rate hike at the Federal Reserve's September meeting, down from 55% just a week prior. While Cleveland Fed President Beth Hammack noted earlier in the week that further rate increases might still be required to bring inflation back to the central bank's 2% target, the softer data has provided immediate relief to bullion markets. Gold touched an intraday high of $4,450 earlier in the week, marking a 10-week peak.
Currency weakness and price recovery
A weakening US dollar has provided additional momentum for the precious metal. The US dollar index fell below 99.6 on Friday, approaching the two-month low of 95.53 recorded on 7 August. Because international gold is quoted in US dollars per troy ounce (31.1035 grams), a cheaper dollar reduces the cost of bullion for buyers holding other currencies, thereby supporting physical and investment demand.
August's 9% rise represents gold's strongest monthly performance since January, when prices surged 13% to reach an all-time high of $5,602 per ounce. Despite the recent recovery, the live gold price remains roughly 21.5% below that record high following months of volatile trading.
Geopolitical frictions remain a backdrop
Beyond macroeconomic indicators, geopolitical developments continue to influence market sentiment. Persistent tensions in the Middle East, particularly surrounding shipping routes in the Strait of Hormuz, have kept geopolitical risk premiums elevated. US President Donald Trump stated this week that a naval blockade is stopping Iranian oil from reaching international markets, while Treasury Secretary Scott Bessent highlighted plans for intensified economic measures against Iran.
Although elevated oil prices and persistent supply frictions keep some inflation risks alive, the combination of a softening dollar and shifting interest rate expectations has formed the primary driver behind bullion's recent strength.
Key takeaways
- Spot gold rose to $4,397 per ounce, up 9% in August for its best monthly showing since January.
- US annual inflation slowed to 3.4%, lowering market odds of a September Federal Reserve rate hike to 35%.
- The US dollar index slipped below 99.6, making dollar-denominated bullion more affordable for international buyers.
- Prices remain 21.5% below the record peak of $5,602 per ounce set in January.
Common questions
Why does lower inflation support gold prices?
When inflation figures come in lower than expected, central banks such as the Federal Reserve face less pressure to raise interest rates. Lower expected interest rates reduce the yield on cash and sovereign bonds, diminishing the opportunity cost of holding non-yielding assets like physical gold.
How does a weaker dollar affect bullion buyers outside the US?
Because gold is globally priced in US dollars, a decline in the greenback means international buyers need less of their domestic currency to purchase the same amount of metal, stimulating demand in overseas markets.
As markets look ahead to upcoming central bank meetings, gold's near-term trajectory is likely to remain closely tied to US economic data and currency shifts.