Investing.com — Gold prices on Friday notched modest gains for July, helped by a weaker dollar and the Federal Reserve’s decision to not hike interest rates. However, the advance was capped by a muddy picture on inflation which further clouded by a resurgence in amid a breakdown in Middle East diplomacy.
dropped 1.5% to settle at $4,044.61/oz, while retreated 1.5% to settle at $4,098.60/oz. For July, the former added 0.9% while the latter climbed 1.5%, with both snapping a four-month losing streak.
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The dollar fell more than 1% for the month, with the bulk of those losses coming this week. That helped gold inch over into positive territory for July, as a weaker dollar tends to make bullion more attractive by making it cheaper for foreign buyers.
U.S. inflation data in July, which covered the period for June, came in softer-than-anticipated across consumer prices, producer prices, and the Fed’s preferred inflation gauge – the personal consumption expenditures (PCE) price index. However, the cooler reports were largely driven by a slide in global oil prices in June. With oil rising again this month due to a collapse in an interim peace deal between the U.S. and Iran, inflationary dynamics were upended going into the central bank’s rate decision on Wednesday.
While the Federal Open Market Committee (FOMC) was mostly expected to hold the federal funds rate steady, the recent jump in oil had led to an unusual amount of uncertainty heading into the decision, with odds of a rate hike higher than recent historical trends. Even though the FOMC held, there were three dissents in the form of Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan, who voted for a 25 basis point hike instead.
Markets had also been hoping for some actionable or guiding comments from Fed Chair Kevin Warsh on Wednesday about how the central bank would combat inflation, but were largely left disappointed. have more clearly reflected market participants’ rate jitters, having risen significantly in July and effectively playing the role of a hike.
On Friday, Hammack, Kashkari, and Logan released separate statements outlining their reasons for a rate hike, with inflation being the key driver.
“In Warsh’s press conference, he once again failed to specify how he intended to achieve his stridently asserted inflation resolve. He also cast doubt on whether PCE inflation will remain the Fed’s inflation target in the medium run. Both of these points raise questions about the new chair’s credibility in delivering lower inflation. We believe this will add some urgency for the rest of the committee to act on its mandate,” Michael Feroli, chief U.S. economist at JPMorgan, said on Thursday.
“We are pulling forward our next rate hike from 2H27 to December this year, with policy rates on hold at 3.75-4.0% thereafter. September is clearly a risk if inflation heats up again soon. We wouldn’t characterize this revision as the market ’pressuring’ the Fed, but rather another challenge prompting the Fed to act to maintain its credibility,” he added.
Ambar Warrick, Scott Kanowsky, and Jaiveer Shekhawat contributed to this article