Gold prices rose slightly as traders assessed the prospects for a deal to reopen the Strait of Hormuz and awaited US inflation data that could provide fresh clues about the Federal Reserve's interest rate path.
The precious metal rose as much as 0.6% to approach $4,400 an ounce, a day after retreating from a two-month high on Tuesday to end the session down 0.5%.
Pakistan's defense minister said the United States and Iran were close to some kind of arrangement to reopen the Strait of Hormuz, even after both sides appeared to harden their positions on the vital waterway for global energy flows.
The rebound in oil prices, coupled with the ongoing stalemate in the Middle East, has increased uncertainty about the Federal Reserve's willingness to raise interest rates, with traders refraining from making large bets ahead of the inflation report due later on Wednesday.
Interest rate swaps show that traders see the likelihood of a quarter-point increase next month as practically a coin toss.
The closely watched Consumer Price Index (CPI) is expected to rise 0.1% in July after falling 0.4% the previous month, according to the median forecast in a Bloomberg survey of economists. Following Friday's weak jobs report, a moderation in price growth could help ease some of the Federal Reserve's inflation concerns.
But the momentum toward tighter monetary policy, which is typically negative for non-interest-bearing gold, will be reinforced if higher energy prices exert further inflationary pressures. Oil held onto its four-day winning streak on Wednesday.
Gold caught between interest rate bets and central bank support
“The macroeconomic backdrop has become more supportive, but it remains fragile,” wrote Ole Hansen, head of commodity strategy at Saxo Bank AS, in a note. “A weaker dollar and receding expectations of further tightening by the Federal Reserve have helped precious metals, but renewed inflationary pressures, another jump in oil prices, or stronger US data could quickly revive expectations of an interest rate hike.”
Gold has risen above the $4,000 per ounce support level in recent weeks, as investors' appetite for the precious metal has been renewed, buoyed by increased purchases by central banks, particularly China. The precious metal traded above its 100-day moving average earlier this week before retreating on Tuesday.
Hansen said: “Gold defended its levels in the downtrend, but has yet to confirm a renewed upward move in a bullish market. Support near $4,200 is gaining increasing importance, while the main test on the upside is once again at the 200-day moving average, which is currently just below $4,500.”
Gold rose 0.6% to $4,395.80 an ounce at 10:06 a.m. Singapore time. Silver also climbed 0.6% to $65.06 an ounce. Platinum and palladium also gained. The Bloomberg Dollar Index, a measure of the U.S. currency, was flat after ending the previous session down 0.1%.
