Gold falls as Fed hike bets and oil-fuelled inflation fears weigh

Gold prices fell 0.6% on Tuesday as expectations for a Federal Reserve rate hike and renewed inflation concerns outweighed support from a weaker U.S. dollar, with investors awaiting key U.S. inflation data later this week.

Investors are also watching U.S. inflation data later this week for clues on the Federal Reserve’s next rate move.

At 09:57 ET (13:57 GMT), XAU/USD fell 0.1% to $4,4405.21 an ounce, while Gold Futures declined 0.6% to $4,448.11. XAG/USD traded flat at $66.17 an ounce, while XPT/USD gained 0.8% to $1,838.78. The U.S. Dollar Index was down 0.3% at 98.83.

Yen surge weighs on dollar and lifts gold

Gold is recovering the previous session’s loss as the Japanese yen continued its sharp rally against the dollar.

The yen approached its strongest level of the year after extending a rally that began last week. Traders have increasingly bet that the Bank of Japan will raise interest rates. The move has also helped weaken the dollar, which normally has an inverse relationship with gold.

A weaker greenback makes dollar priced bullion cheaper for buyers using other currencies. Gold has therefore found support from the currency move even as other parts of the macro backdrop remain challenging.

The latest recovery comes after gold fell sharply last week and has since traded mostly around the $4,400 level. The metal has remained in a relatively narrow range since rebounding from a floor near $4,000 in July.

Still, gains are being limited by inflation risks linked to disruptions around the Strait of Hormuz. Oil prices rose after renewed U.S. and Iranian clashes, with Brent crude approaching $100 a barrel. 

Fed outlook, inflation data remain key

Markets continue to price roughly a 60% chance of a Fed rate hike next week, reflecting the impact of last week’s stronger nonfarm payrolls report. 

The immediate test will come from U.S. consumer price data later this week, which could determine whether the recent increase in rate hike expectations is sustained.

Tony Sycamore, senior market analyst at IG, said gold finished lower overnight at around $4,406, pressured by Friday’s strong payrolls report and higher energy prices.

He expects that combination to push U.S. Treasury yields higher when markets reopen, creating another headwind for bullion.

China’s central bank demand also continues to provide a floor for gold, with the People’s Bank of China accelerating purchases in August to the highest monthly level since 2023, even as bullion prices surged.