Gold prices edged higher on Wednesday, supported by a softer US dollar and escalating tensions between the United States and Iran. Spot gold rose 0.6 per cent to $4,381.32 per ounce by 0505 GMT, while US gold futures slipped 0.3 per cent to $4,424.70. The divergence between spot and futures reflects near-term uncertainty ahead of key inflation data later this week.
Dollar weakness and rate expectations
The US dollar remained subdued, making dollar-priced metals more affordable for holders of other currencies. A weaker dollar typically boosts gold demand as it lowers the effective cost for non-US buyers.
Market attention is now fixed on the upcoming inflation reports. The US producer price index is due on Thursday, followed by the consumer price index on Friday. These figures will help shape expectations for the Federal Reserve's next policy move. According to the CME FedWatch Tool, traders currently see about a 60 per cent chance that the Fed will raise interest rates at its upcoming meeting.
Higher interest rates tend to weigh on gold because the metal pays no yield. However, OANDA senior market analyst Kelvin Wong noted that gold is caught between opposing forces. While expectations of a hawkish Fed pressure prices, the dollar debasement trade and concerns over fiscal deficits continue to provide underlying support. He added that the current range-bound movement may persist until the CPI release.
Geopolitical tensions add support
Renewed US-Iran tensions have added a geopolitical premium to gold. Iran's Revolutionary Guard said it fired ballistic missiles at a US military base in Jordan and attacked 10 ships, following a US announcement that it had destroyed five Iranian oil tankers. The escalation marks a sharp increase in the six-month-old conflict.
Brent crude oil prices rose for a fourth consecutive session. Rising energy costs tend to feed into broader inflation, which can indirectly support gold as an inflation hedge. However, the immediate effect of higher oil prices can also reinforce expectations of tighter monetary policy, creating a mixed backdrop for bullion.
Commodities strategist Kelly Xu of Alpine Macro said precious metals face a near-term test but that another major selloff is unlikely. She pointed to physical market tightness and structural supply deficits, driven by inelastic mine production and ongoing demand from electrification, electronics and AI-related infrastructure, as longer-term supportive factors, particularly for silver.
Other precious metals
Spot silver gained 0.9 per cent to $66.31 per ounce. Platinum rose 1.1 per cent to $1,833.58, while palladium edged down 0.1 per cent to $1,347.82. The broader precious metals complex showed mixed signals, with silver and platinum benefiting from the weaker dollar and industrial demand prospects.
Key takeaways
- Spot gold rose 0.6% to $4,381.32 as the dollar softened and US-Iran tensions escalated.
- Markets await US PPI and CPI data later this week for clues on the Federal Reserve's rate path.
- CME FedWatch data shows a 60% probability of a rate hike at the next Fed meeting.
- Analysts note that physical market tightness and structural supply deficits provide underlying support for precious metals.
Common questions
Why did gold rise despite expectations of a rate hike?
Gold rose mainly because of a weaker US dollar and heightened geopolitical tensions between the US and Iran. While the prospect of higher rates is a negative factor, the dollar debasement trade and fiscal deficit concerns are providing countervailing support.
What inflation data are markets watching this week?
Investors are focused on the US producer price index (PPI) due on Thursday and the consumer price index (CPI) due on Friday. Both reports will influence expectations for the Federal Reserve's next interest rate decision.
How do oil prices affect gold?
Rising oil prices can push inflation higher, which may increase gold's appeal as an inflation hedge. However, higher inflation also raises the likelihood of tighter monetary policy, which can weigh on gold because it is a non-yielding asset.
For the latest price movements, check the live gold price.
Gold's near-term direction remains tied to the interplay between rate expectations and geopolitical risk. With inflation data and a Fed meeting on the horizon, volatility is likely to persist.