Gold prices moved lower on Friday, extending their retreat from a 10-week high reached earlier in the week as investors locked in some gains following the recent rally. Persistent uncertainty surrounding the Strait of Hormuz continued to complicate the inflation outlook and expectations for Federal Reserve monetary policy.
At 02:08 ET (06:08 GMT), XAU/USD fell 0.4% to $4,334.48 an ounce, while Gold Futures declined 0.7% to $4,390.30. XAG/USD slipped 0.4% to $64.23 an ounce, whereas XPT/USD gained 0.3% to $1,724.43. The US Dollar Index was down 0.1% at 99.82.
Despite the latest pullback, gold remained on track to record a second consecutive weekly gain.
Softer U.S. inflation strengthens case for Fed pause
Gold declined 1.3% on Thursday as traders reassessed the strength of its recent advance following relatively subdued U.S. inflation figures.
The data suggested that the inflationary effects of the energy shock associated with the Iran war were less pronounced in July than some investors had feared.
Money markets are now pricing roughly a one-in-three chance of a Federal Reserve rate increase in September. Investors will receive further employment figures before the central bank’s next meeting, while comments from Fed Chair Kevin Warsh at the Jackson Hole symposium later this month will also be closely scrutinised.
ANZ said the latest producer price figures reinforced expectations that policymakers may leave rates unchanged. Headline PPI was flat in July, while core PPI increased 0.2% from the previous month, with both measures coming in below market forecasts.
The PPI figures followed similarly contained CPI data earlier in the week. Together, the reports have strengthened the argument for the Fed to keep borrowing costs unchanged in September, although upcoming employment and inflation releases could still alter expectations.
For gold, the absence of an immediate rate increase is generally supportive because the precious metal does not generate interest income.
Profit-taking follows gold’s recent technical breakout
ANZ also noted that investors have begun taking profits after gold’s latest recovery, particularly after the metal moved above its 100-day moving average.
That technical level has represented an important barrier for bullion, with gold moving above it for the first time since April earlier this week before subsequently slipping back below it.
The recent rally had also taken gold comfortably above the psychologically important $4,000-an-ounce threshold, supported by renewed investor interest and stronger central-bank purchases, particularly from China.
While softer inflation has reduced the immediate risk of higher U.S. rates, the strength of the recent advance has encouraged some investors to reduce positions and secure gains.
Hormuz tensions keep inflation outlook uncertain
Developments in the Middle East remain a major source of uncertainty for precious metals and monetary policy expectations.
Investors continue to follow efforts by Washington and Tehran to resolve the conflict and restore normal commercial traffic through the Strait of Hormuz, given the waterway’s importance to global energy supplies.
Geopolitical risks have increased after the U.S. threatened to maintain an indefinite naval blockade of Iran as ceasefire efforts remained stalled. Tehran has accused Washington of escalating pressure, while attacks involving vessels in the region have reinforced concerns about the security of energy shipments.
A renewed escalation could drive oil prices higher and reignite inflation pressures, potentially strengthening the case for tighter Federal Reserve policy.
By contrast, a sustained reopening of the Strait of Hormuz could ease energy supply constraints and reduce some of the inflation risks that have complicated the Fed’s outlook since the U.S.-Iran war began in late February.
Gold faces potential consolidation after recent rally
Gold continues to benefit from a more favourable interest-rate backdrop, renewed investment demand and central-bank buying, but the recent price surge has left the market vulnerable to periods of consolidation.
ANZ said profit-taking has increased despite the improving outlook for U.S. rates. Softer inflation has reduced the near-term probability of another Fed hike, but uncertainty surrounding Middle East energy supplies remains significant.
With positioning becoming more stretched following the recent rebound, gold could remain sensitive to both geopolitical developments and incoming U.S. economic data as investors assess whether the latest rally has further room to run.