Gold rises after touching two-month low as traders eye Fed rate outlook

Gold prices steadied on Thursday after falling to their lowest level since early August in the previous session, as renewed tensions around the Strait of Hormuz kept inflation risks elevated and reinforced expectations that the Federal Reserve could raise interest rates again this year. 

By 09:32 ET (13:32 GMT), spot gold had advanced by 0.5% to $4,129.25 an ounce, while gold futures had gained 0.3% to $4,153.25 an ounce.

Iran has stepped up attacks on tankers crossing the Strait of Hormuz, adding to concerns over the security of a key global energy route. The White House is also considering possible military strikes against Iranian targets ahead of the U.S. midterm elections in November, according to media reports.

While oil flows from the Middle East briefly recovered to pre-conflict levels last month, the risks around Hormuz and the nearby Bab el-Mandeb Strait have pushed shipping costs to record highs.

"Geopolitically, U.S.-Iran nuclear talks remain deadlocked, with uranium enrichment rights the main obstacle, and uncertainty in the Middle East persists," said Neil Welsh, Head of Metals at Britannia Global Markets, in a note.

Meanwhile, a strong storm near in the U.S. Gulf coast was also putting further pressure on energy supplies. Oil and gas producers had shuttered more than fourth of current oil output and more than 16% of current natural gas production as of Wednesday because of the storm, according to Marine Minerals Administration data cited by Reuters.

Surging energy prices have fueled inflation and contributed to tighter monetary policy, threatening to increase the opportunity cost of holding non-yielding assets like gold.

Fed minutes reinforce case for another hike

Fresh pressure on gold came from the Federal Reserve’s latest meeting minutes. All 19 policymakers supported September’s rate increase, while most believed another increase would be appropriate by the end of year -- although there was little urgency for another hike this month.

Markets are now pricing roughly a 20% probability of an October rate hike, but an 80% chance of a hike by December, according to CME FedWatch.

Against this backdrop, the greenback has strengthened, making dollar-priced bullion more expensive for buyers using other currencies.

Still, resilient demand has provided an important source of support for gold. ANZ analysts said in a note that solid buying by central banks helped limit gold’s losses. The People’s Bank of China, in particular, increased its gold reserves by 740,000 ounces in September, marking its 23rd consecutive month of accumulation.