Gold prices moved modestly higher on Wednesday as a softer U.S. dollar provided support for bullion ahead of the Federal Reserve’s latest interest rate announcement, while renewed geopolitical tensions in the Middle East and stronger oil prices kept inflation concerns firmly on investors’ radar.
Spot gold (XAU/USD) rose 0.3% to $4,038.71 an ounce by 04:52 ET (08:52 GMT), while U.S. gold futures slipped 0.03% to $4,037.65 an ounce.
The precious metal had fallen by more than 1% in the previous session as the stronger U.S. dollar reduced demand for gold.
Markets Focus on Federal Reserve Decision
The U.S. Dollar Index eased 0.1% on Wednesday but remained close to its highest level in a month, making gold relatively more expensive for buyers using other currencies.
The Federal Reserve is widely expected to leave benchmark interest rates unchanged when it concludes its two-day policy meeting later in the day.
According to CME Group’s FedWatch Tool, markets currently assign roughly a 68% probability that rates will remain unchanged, while the likelihood of a 25-basis-point increase stands at around 32%. Investors are also pricing in a roughly 77% chance of a rate hike at the September meeting.
Higher interest rates generally reduce the appeal of gold because the metal does not generate interest income.
Middle East Tensions Return to the Forefront
Investors also monitored the renewed deterioration in the Middle East after the U.S. military announced it had intercepted multiple Iranian ballistic missiles aimed at American forces in the region.
Iran’s Revolutionary Guards later stated that they had targeted a U.S. air base and a U.S. Central Command facility in Jordan, raising concerns that the recent diplomatic pause may prove temporary.
Meanwhile, Iraq’s Iran-aligned Popular Mobilization Forces (PMF) claimed that U.S. and Saudi forces carried out airstrikes against several of its headquarters across Iraq.
Saudi Arabia separately reported intercepting drones launched from Iraqi territory that were targeting oil infrastructure and blamed Iran-backed militias for the attacks.
The renewed military exchanges ended a four-day pause in direct confrontation between Washington and Tehran, increasing concerns that regional tensions could escalate once again.
Oil prices responded by climbing more than 4% following the latest developments.
Commenting on the market impact, ING analysts said: “Higher oil prices amid a re-escalation in the Middle East will weigh on gold in early morning trading, reigniting inflation concerns.”
Investors Await Key U.S. Economic Data
Beyond the Federal Reserve decision, traders are also preparing for several key U.S. economic releases later this week, including the Personal Consumption Expenditures (PCE) Price Index and July’s nonfarm payrolls report, both of which could influence expectations for future monetary policy.
Elsewhere in precious metals, silver gained 1.4% to $57.94 an ounce, while platinum declined 0.5% to $1,598.30 an ounce.
In industrial metals, benchmark copper futures on the London Metal Exchange fell 0.4% to $13,638.00 per tonne, while U.S. copper futures traded little changed at $6.275 per pound.