Investing.com – inched higher on Wednesday, buoyed by a subdued U.S. , while the U.S. interest-rate outlook remained in focus as violence in the Middle East intensified.
By 05:25 ET (09:25 GMT), had risen by 1.0% to $4,397.47 an ounce and gold futures had inched up by 0.1% to $4,441.86 an ounce.
, a tracker of the greenback against a basket of global currencies, was mostly unchanged at 98.77. Some analysts cited by Reuters have cited recent strength in the over the past week as the driver of the dollar’s relative weakness.
A softer greenback can boost gold by making the yellow metal less expensive for overseas buyers.
Meanwhile, Iran and the U.S. have exchanged a fresh round of attacks in areas around the Middle East, denting the prospects for an imminent end to a six-month-old conflict that has roiled global financial markets. , the global oil benchmark, once again topped $100 a barrel, underlining worries over continued energy supply shortages through the Strait of Hormuz, a vital waterway off Iran’s southern coast.
The renewed climb in oil prices threaten to exacerbate concerns over energy-driven inflation ahead of a fresh round of central bank interest rate decisions in the coming days.
Markets are now wagering a roughly 60% chance that the Federal Reserve will opt to lift rates by 25 basis points next Wednesday, up from 40% a week earlier. Policymakers have hinted at a desire to prioritize corralling inflationary pressures, while new signs of resilience in the labor market have appeared to bolster the case for a borrowing cost increase.
In theory, raising rates can quell inflation, albeit at the risk of weighing on the jobs picture and wider economic growth.
For gold, elevated interest rates can eat away at demand by increasing the opportunity cost of holding the non-yielding asset.
“Gold has recently come under increased pressure following a change in expectations around U.S. interest rates,” said Rick Kanda, Managing Director at The Gold Bullion Company.
The metal surged nearly 10% in August, notching its best monthly gain since January. Kanda suggested that “[w]hen gold rises this quickly, some investors may sell to lock in profits, particularly if economic data strengthens the case for higher interest rates.”
Still, he said there is the possibility of gold moving back towards a late-August peak of $4,685 an ounce, but flagged that he expects “considerable fluctuations along the way.”
“Investors should also be prepared for prices to potentially fall towards the low-$4,000s if rate-hike expectations continue to rise,” Kanda said.
(Roushni Nair contributed reporting)