Gold prices moved higher on Thursday, climbing back toward $4,420 per ounce as a softer U.S. dollar supported demand ahead of key U.S. inflation data.
However, elevated Treasury yields and ongoing tensions in the Middle East continued to limit the upside.
At 02:40 ET, XAU/USD rose 0.4% to $4,418.87 an ounce, while gold futures edged 0.03% higher to $4,461.82.
Silver also advanced, with XAG/USD gaining 0.5% to $67.62. Platinum moved in the opposite direction, falling 0.6% to $1,889.34.
Meanwhile, the U.S. Dollar Index slipped slightly to 98.74.
Weaker Dollar Supports Gold Prices
A softer dollar provided support for gold during Thursday’s session.
Because gold is priced in U.S. dollars, a weaker currency can make the metal more attractive to buyers using other currencies.
Gold has traded around the $4,400 level in recent weeks after rebounding from a low near $4,000 in July.
Investors continue to reassess the outlook for Federal Reserve policy and its potential impact on precious metals.
Treasury Yields Limit Gold’s Upside
Higher U.S. Treasury yields remain one of the main obstacles for gold.
The benchmark 10-year Treasury yield moved higher after the U.S. government announced plans to buy up to $6 billion of longer-dated debt.
The measure failed to significantly calm the bond market.
Higher yields can reduce demand for gold because the precious metal does not pay interest. As a result, rising bond returns can make fixed-income assets more attractive by comparison.
Middle East Tensions Keep Safe-Haven Demand in Focus
Geopolitical tensions are also influencing the gold market.
Brent crude recently climbed back above $100 per barrel for the first time since July as the conflict between the United States and Iran continued.
The war is now entering its seventh month.
Iran has warned that it is prepared for a more intense conflict if U.S. attacks on Iranian territory and infrastructure continue.
The ongoing uncertainty has supported gold’s longer-term role as a safe-haven asset, even as higher interest rates create short-term pressure.
Oil Prices Add to Inflation Concerns
The surge in crude oil prices is also increasing fears about persistent inflation.
Higher energy costs can raise transportation and production expenses, potentially keeping price pressures elevated across the economy.
That could influence the Federal Reserve’s next policy decision and affect expectations for interest rates.
For gold traders, the combination of higher inflation and tighter monetary policy creates a mixed environment.
Inflation can strengthen demand for gold as a hedge, while higher interest rates and bond yields can make the metal less attractive.
U.S. PPI and CPI Data Could Drive the Next Move
Markets are now focused on upcoming U.S. inflation reports.
The Producer Price Index is due on Thursday, followed by the Consumer Price Index on Friday.
Both reports could play an important role in shaping expectations ahead of the Federal Reserve’s next policy meeting.
Swap markets currently imply roughly a 65% probability of a rate increase this month.
A hotter-than-expected inflation reading could strengthen expectations for tighter monetary policy and push Treasury yields higher.
On the other hand, softer inflation data could weaken the dollar and provide further support for gold prices.
Gold Faces Key Technical Level Near $4,537
Tony Sycamore, senior market analyst at IG, noted that gold finished the previous session higher near $4,402.
The move came despite a sharp increase in U.S. bond yields, with weakness in the dollar helping support the metal.
Sycamore highlighted the 200-day moving average near $4,537 as an important technical level.
A sustained move above that area could suggest that the recent pullback from the $4,697 high has ended and that the broader bullish trend is gaining strength again.
Gold ETF Demand Remains Strong
Investor demand for gold-backed exchange-traded funds has also strengthened.
According to the World Gold Council, global gold ETFs attracted around $18 billion in August.
That marked the second-largest monthly inflow on record.
Total holdings increased by 121 tonnes to a record 4,189 tonnes, while assets under management climbed 16% to approximately $615 billion.
North American and European Funds Lead Inflows
Demand was particularly strong in North America and Europe.
North American gold funds recorded their third-largest monthly inflow on record.
European-listed funds performed even better, posting their largest monthly inflow ever, according to the World Gold Council.
The figures suggest that investors continue to view gold as an important portfolio hedge despite pressure from higher interest rates and bond yields.
Gold Outlook Hinges on Inflation and Fed Policy
Gold remains caught between competing market forces.
A weaker U.S. dollar, geopolitical uncertainty and strong ETF demand are supporting prices.
At the same time, elevated Treasury yields and the possibility of further Federal Reserve tightening continue to limit gains.
The upcoming U.S. inflation data could therefore prove decisive.
If inflation comes in softer than expected, gold could gain further support. However, stronger data may reinforce expectations for higher rates and keep pressure on the precious metal.
