Gold prices continued their upward run for a third consecutive session on Wednesday, as expectations that the US Federal Reserve will keep interest rates on hold this year supported demand for the non-yielding asset. Spot gold rose 0.2% to $4,424.28 per ounce by 0130 GMT, while US gold futures for December delivery edged 0.2% higher to $4,480.90.
The move higher follows a string of soft US economic data last week, including an unexpected rise in jobless claims, lower-than-expected consumer price inflation, and weaker retail sales. These figures have reduced the likelihood of a rate hike at the Fed’s September meeting, with market pricing now showing a near-65% chance that the central bank will hold rates steady. A Reuters poll of economists also points to the Fed keeping its key interest rate unchanged through the end of the year.
Dollar weakness adds to gold’s appeal
A softer US dollar has also helped lift gold. The greenback lingered around multi-month lows against most major currencies on Wednesday. Because gold is priced in dollars, a weaker dollar makes the metal cheaper for buyers using other currencies, which tends to boost demand.
IG market analyst Tony Sycamore noted that gold is extending its gains “after last week’s soft US economic data, which has raised hopes that the Fed will keep rates on hold this year.” He added that gold appears to be regaining its safe-haven status, helped by rising geopolitical tensions.
Safe-haven bid returns amid Iran tensions
Gold’s traditional role as a safe haven has re-emerged as geopolitical risks increase. A senior Iranian official told Reuters that Iran will shift to a “fully offensive” military posture because efforts to negotiate a permanent end to the war with the US have stalled. Washington has ruled out extending a temporary ceasefire agreement. Sycamore said that “hawkish rhetoric from Iran helped gold brush off higher yields,” referring to the fact that gold often struggles when bond yields rise because it offers no yield itself.
In a low-interest-rate environment, gold tends to perform well because the opportunity cost of holding a non-yielding asset is lower. With the Fed expected to keep rates on hold, that condition remains favourable for bullion.
Focus on Fed minutes
Market attention now turns to the minutes of the Fed’s most recent policy meeting, due for release later on Wednesday. Investors will scrutinise the document for any hints about the central bank’s thinking on inflation, employment, and the timing of future rate moves. The minutes could either reinforce the current dovish expectations or surprise markets with a more hawkish tone.
Among other precious metals, spot silver rose 0.9% to $66.40 per ounce. Platinum inched 0.2% higher to $1,772.75, while palladium slipped 0.3% to $1,330.05.
Key takeaways
- Spot gold rose 0.2% to $4,424.28 per ounce, extending gains for a third session.
- Weak US economic data and a softer dollar have reduced expectations of a Fed rate hike in September.
- Geopolitical tensions with Iran have boosted gold’s safe-haven appeal.
- Investors await the Fed’s policy meeting minutes for further clues on the interest rate outlook.
Common questions
Why does gold rise when rate-hike fears ease?
Gold is a non-yielding asset, meaning it pays no interest or dividends. When interest rates are low or expected to stay low, the opportunity cost of holding gold instead of interest-bearing assets like bonds decreases. This makes gold more attractive to investors.
What are the Fed minutes and why do they matter for gold?
The Federal Reserve releases minutes of its policy meetings three weeks after each decision. They provide detailed insights into the discussions among policymakers, including views on the economy, inflation, and future rate moves. Gold prices can react strongly if the minutes signal a change in the expected path of interest rates.
How does a weaker US dollar affect gold prices?
Gold is priced in US dollars. When the dollar weakens against other currencies, gold becomes cheaper for foreign buyers, which can increase demand and push prices higher. A weaker dollar also makes gold a more attractive alternative to currency-based assets.
Gold’s recent gains reflect a combination of easing monetary policy expectations, a softer dollar, and renewed safe-haven demand. For the latest price movements, check the live gold price.