SINGAPORE – Gold edged higher after a three-day decline as a weakening US dollar offset inflation concerns stemming from renewed attacks on ships in the Middle East.
Bullion rose as much as 0.7 per cent on Sept 9, having dropped 2.6 per cent over the previous three sessions. A gauge of the US dollar has fallen about 0.4 per cent this week, making the precious metal cheaper for many buyers.
US forces destroyed five Iranian tankers carrying crude near Kharg Island, the Islamic Republic’s main oil export hub, in response to attempted missile attacks on an American warship. That raised fears of an escalation in the months-long war.
Higher crude prices have heightened concerns that rising energy costs could keep inflation elevated, said Manav Modi, commodity analyst at Motilal Oswal Financial Services. “The dollar, however, remained under pressure as the Japanese yen strengthened to a seven-month high, providing some support to bullion.”
Oil extended gains, with benchmark Brent crude close to US$100 a barrel, adding momentum to the case for a rate hike less than a week before the Federal Reserve’s Sept 14-15 meeting.
Traders are eyeing key inflation prints due this week for fresh clues to the central bank’s next move.
“A softer reading will be a relief for gold traders” as it would support the case for holding rates steady, said Ahmad Assiri, a market strategist at Pepperstone Group.
“The greater risk lies in an upside inflation surprise, which would likely strengthen the case for a hike, creating what could be massive pressure on the precious metal,” he added.
Tighter monetary policy is typically a headwind for gold, which does not pay interest. Swaps traders are pricing in a roughly 60 per cent chance of a Fed rate increase in September.
Since bouncing from a floor near US$4,000 an ounce in July, gold has settled in a relatively narrow range either side of US$4,400, as traders repeatedly recalibrate the outlook for Fed policy.
Despite near-term headwinds, many investors are still betting that bullion will grind higher as it rediscovers its traditional value as a portfolio hedge.
“For now, gold’s low-volatility consolidation around US$4,400 appears more like a market waiting for clarity to decide where to go next,” Assiri said. “The CPI (consumer price index) outcome could provide the needed catalyst for the next meaningful move.”
Spot gold rose 0.5 per cent to US$4,378.60 an ounce at 11.45am in Singapore. Silver climbed 0.8 per cent to US$66.298 an ounce. Platinum advanced 1 per cent, while palladium was flat.
The Bloomberg Dollar Spot Index, a gauge of the US currency, dipped 0.1 per cent. BLOOMBERG
