Gold begins to recover as focus turns to US inflation data

Gold prices rose in European trading on Wednesday, holding above the one-week low reached earlier in the Asian session and heading for their first gain in four days, as buying emerged at lower levels and the US dollar fell to a three-week low against a basket of global currencies.

Market attention over the next two days will focus on key US inflation data for August, which is expected to provide crucial signals about the Federal Reserve’s interest rate path in the coming period.

The Price

• Gold prices today: Gold rose 1.3% to $4,412.86, from an opening level of $4,355.53, after hitting a session low of $4,341.40, its lowest level since September 2.

• At Tuesday’s settlement, gold prices lost 1.1%, marking a third consecutive daily decline, pressured by expectations for US interest rates.

US dollar

The US dollar index fell 0.2% on Wednesday, extending losses for a third consecutive session and hitting a three-week low, reflecting continued weakness in the US currency against a basket of global currencies.

As is widely known, a weaker US currency makes dollar-denominated gold more attractive to buyers holding other currencies.

The dollar’s decline comes amid renewed pressure from the US administration on the Federal Reserve to cut interest rates, while markets await key US inflation data on Thursday and Friday, which will provide crucial signals about the future path of US interest rates.

US interest rates

• According to CME’s FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting currently stands at 40%, while the probability of a 25-basis-point rate hike stands at 60%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting currently stands at 14%, while the probability of a 25-basis-point rate hike stands at 86%.

• Investors are awaiting US producer price data on Thursday and consumer price data on Friday to reassess those expectations.

Gold outlook

“The gold market is seeing a short-term tug of war between buyers and sellers, and we could continue to see this kind of price action through the end of the week, when the Consumer Price Index data are released,” said Kelvin Wong, senior market analyst for Asia-Pacific at OANDA.

Wong added that while expectations of a hawkish Federal Reserve are weighing on gold prices, the debasement trade and concerns over the fiscal deficit continue to provide support.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by around 1.42 metric tons on Tuesday, bringing total holdings down to 1,050.63 metric tons, their lowest level in a week.