Gold prices declined on Friday as investors continued to take profits following the metal’s recent surge to a 10-week high, while uncertainty surrounding the Strait of Hormuz kept energy-driven inflation risks firmly in focus.
At 02:08 ET (06:08 GMT), XAU/USD was down 0.4% at $4,334.48 an ounce, while Gold Futures dropped 0.7% to $4,390.30. XAG/USD declined 0.4% to $64.23 an ounce, whereas XPT/USD advanced 0.3% to $1,724.43. The US Dollar Index slipped 0.1% to 99.82.
Despite giving back some of its recent gains, bullion remained on course for its second consecutive weekly increase.
Cooling inflation reduces immediate Fed tightening risk
The precious metal fell 1.3% on Thursday as traders reassessed its recent rally following another round of relatively soft U.S. inflation data.
The figures indicated that the inflationary impact of the energy disruption associated with the Iran war was comparatively contained during July, reducing some concerns that the Federal Reserve could need to tighten monetary policy again immediately.
Markets are now assigning roughly a one-in-three probability to a September interest-rate increase. Investors will receive further employment figures before the Fed’s next policy decision, while remarks from Chair Kevin Warsh at the Jackson Hole symposium later this month will be another important focus.
ANZ said the latest producer-price report strengthened the argument for unchanged rates. Headline PPI showed no monthly increase in July, while core PPI rose 0.2%, with both figures coming in below consensus forecasts.
Those numbers followed relatively restrained CPI readings earlier in the week, providing further evidence that inflation pressures have not accelerated as sharply as feared.
A lower probability of an immediate rate increase is generally positive for gold because holding bullion does not provide interest income.
Recent gold rally encourages profit-taking
Although the interest-rate backdrop has become more supportive, the speed of gold’s recent recovery has prompted some investors to secure profits.
ANZ highlighted increased profit-taking after bullion moved through its 100-day moving average, a closely watched technical level.
Gold climbed above the indicator for the first time since April earlier this week, although subsequent selling pushed the metal back below it.
The broader recovery has also taken bullion firmly above the psychologically significant $4,000-an-ounce level in recent weeks.
Renewed investment demand and stronger purchases from central banks, particularly China, have provided additional support to the market.
Strait of Hormuz remains key inflation risk
Geopolitical developments continue to complicate the outlook for both gold and U.S. interest rates.
Washington and Tehran have yet to resolve their dispute over the Strait of Hormuz, leaving investors uncertain about the security of global energy supplies.
Tensions have increased following U.S. threats to maintain an indefinite naval blockade of Iran as ceasefire efforts struggle to make progress. Tehran has accused Washington of escalating the confrontation, while attacks involving vessels in the region have added to concerns about energy shipments.
Any further deterioration could push crude prices higher, increasing inflationary pressure and potentially giving the Federal Reserve more reason to consider tighter monetary policy.
A lasting reopening of the Strait of Hormuz, however, could reduce supply concerns and ease some of the inflation risks created by the U.S.-Iran war since late February.
Gold outlook balances rate support against stretched positioning
Gold’s fundamental backdrop remains supported by the reduced likelihood of an immediate Fed rate increase, continued central-bank purchases and renewed investor demand.
However, ANZ said the recent advance has created conditions for further profit-taking and consolidation.
Middle East energy risks remain capable of changing inflation expectations quickly, while incoming U.S. economic figures could alter market assumptions about the Fed’s next move.
With bullion having recently reached its highest level in ten weeks, traders are now balancing the improving interest-rate environment against the possibility that positioning has become stretched following the sharp recovery.
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