Gold holds above one-week low ahead of US inflation data

Gold prices rose in European trading on Friday, holding above a one-week low reached earlier in the Asian session, as buying emerged at lower levels around the $4,300-an-ounce threshold.

Despite the rebound, gold remains on track for a third consecutive weekly loss, pressured by the recovery of the US dollar, the world’s largest currency, alongside the continued rise in long-term US Treasury yields.

Investors are awaiting key US inflation data for August later today, which will provide crucial signals about the likelihood of the Federal Reserve raising interest rates next week.

The Price

• Gold prices today: Gold rose 0.95% to $4,359.31, from the opening level of $4,318.443, after recording a low of $4,300.85, the lowest since September 2.

• At Thursday’s settlement, gold lost 1.9%, its fourth daily decline in five sessions, following the release of strong US economic data.

Weekly trading

Over the course of this week, which officially ends with today’s settlement, gold prices have fallen 1.6% so far and are on track for a third consecutive weekly loss.

US dollar

The US Dollar Index rose 0.1% on Friday, extending gains for a second consecutive session and reflecting the continued recovery of the US currency from a three-week low against a basket of major and minor currencies.

US Treasury yields

The yield on the 10-year US Treasury note rose around 0.4% on Friday, extending gains for a fifth consecutive session and reaching a three-year high of 4.979%, boosting the attractiveness of investments in the US dollar.

The yield is moving closer to breaking above the 5% threshold for the first time since October 2023, driven by the current surge in global oil prices, which is expected to increase inflationary pressures on Federal Reserve policymakers and significantly strengthen the likelihood of further US interest rate hikes this year.

US interest rates

• Annual US producer price inflation rose 5.4% in August, exceeding market expectations for a 5.3% increase, after rising 4.8% in July.

• Following the data, according to the CME FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting fell from 40% to 28%, while the probability of a 25-basis-point rate hike increased from 60% to 72%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting fell from 14% to 6%, while the probability of a 25-basis-point rate hike increased from 86% to 94%.

• Investors are awaiting key US inflation data later today, with the release of the August Consumer Price Index expected to trigger another repricing of those probabilities.

Gold outlook

We expect that if US inflation data are less hawkish than markets currently anticipate, expectations for a Federal Reserve rate hike in September will decline. This could halt the recovery in the US dollar and the rise in US Treasury yields, providing support for gold and other precious metals.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by around 0.36 metric tons on Thursday, bringing the total to 1,050.27 metric tons, the lowest level in a week.