Gold prices moved lower on Friday, extending their retreat from a 10-week high reached earlier in the week. Investors took profits after a strong rally, while uncertainty surrounding the Strait of Hormuz kept inflation and Federal Reserve policy risks in focus.
At 02:08 ET, or 06:08 GMT, XAU/USD fell 0.4% to $4,334.48 per ounce. Gold futures dropped 0.7% to $4,390.30.
Elsewhere in precious metals, silver declined 0.4% to $64.23 an ounce, while platinum gained 0.3% to $1,724.43. The U.S. Dollar Index slipped 0.1% to 99.82.
Softer U.S. Inflation Supports Fed Hold Expectations
Gold has retreated from its recent peak but remains on track for a second consecutive weekly gain.
The metal fell 1.3% on Thursday as traders reassessed the strength of the recent rally. Softer U.S. inflation data suggested that some of the inflationary pressure linked to higher energy costs had eased during July.
Money markets now price roughly a one-in-three chance of a Federal Reserve rate hike in September.
Investors will also watch upcoming employment figures and comments from Fed Chair Kevin Warsh at the Jackson Hole symposium later this month for further clues about monetary policy.
U.S. PPI Data Shows Moderating Price Pressures
ANZ said the latest U.S. producer price figures strengthened the case for the Federal Reserve to keep interest rates unchanged.
Headline Producer Price Index data was flat in July, while core PPI increased 0.2% from the previous month. Both figures came in below market expectations.
The softer PPI numbers followed the latest CPI report, which also indicated relatively contained inflation pressures.
Together, the reports support expectations that the Fed may leave rates unchanged in September. However, upcoming inflation and employment data could still alter that outlook.
Lower Rate Hike Risk Remains Supportive for Gold
Expectations that the Federal Reserve will avoid an immediate rate increase remain broadly positive for gold.
Bullion does not provide interest or dividend income. As a result, higher interest rates can make yield-bearing assets more attractive compared with gold.
However, ANZ noted that profit-taking has increased following gold’s recent rebound, particularly after prices moved above the 100-day moving average.
That technical level had acted as an important resistance barrier for the precious metal.
Strait of Hormuz Keeps Inflation Risks Elevated
Geopolitical developments in the Middle East remain another key driver for gold prices.
Markets continue to monitor efforts by Washington and Tehran to end the conflict and restore shipping through the Strait of Hormuz, a critical route for global energy supplies.
Tensions have remained elevated following U.S. threats to maintain a naval blockade of Iran as ceasefire talks remain stalled.
Iran has accused Washington of increasing pressure, while incidents involving ships in the region have added to concerns about energy supplies passing through the Strait.
Higher Oil Prices Could Complicate Fed Policy
Any further escalation in the region could push oil prices higher and revive inflation concerns.
A renewed surge in energy prices could strengthen the case for tighter Federal Reserve policy, which could create additional pressure on gold.
By contrast, a sustained reopening of the Strait of Hormuz could ease supply concerns and reduce some of the inflation risks that have complicated the Fed’s policy outlook.
Gold Demand Remains Supported Above $4,000
Gold’s recovery above the psychologically important $4,000-per-ounce level has also been supported by stronger investor demand and increased central bank purchases, particularly from China.
Earlier this week, gold climbed above its 100-day moving average for the first time since April. Prices have since moved back below that level.
ANZ said the improving interest rate outlook continues to provide underlying support. However, profit-taking, geopolitical uncertainty and stretched market positioning could leave gold vulnerable to further consolidation in the near term.
