Gold prices moved higher on Tuesday as a sharp rally in the Japanese yen weakened the US dollar and supported demand for bullion.
However, gains remained limited as higher oil prices increased inflation concerns, while investors continued to assess the outlook for Federal Reserve interest rates.
At 22:08 ET, XAU/USD rose 0.5% to $4,430.40 an ounce. Gold futures were little changed at $4,475.61.
Silver also gained, with XAG/USD rising 0.9% to $66.79 an ounce. Platinum advanced 0.8% to $1,838.48.
Meanwhile, the US Dollar Index slipped 0.2% to 98.76.
Yen Rally Weakens Dollar and Supports Gold
Gold recovered part of its previous session’s losses as the Japanese yen extended a strong rally against the US dollar.
The yen approached its strongest level of the year after continuing gains that began last week.
Traders have increasingly priced in the possibility that the Bank of Japan will raise interest rates, helping strengthen the Japanese currency.
The stronger yen has also placed pressure on the dollar.
Because gold is priced in US dollars, a weaker greenback generally makes bullion cheaper for investors using other currencies. This can improve demand for the precious metal.
Gold Holds Near the $4,400 Level
The latest recovery follows a sharp decline in gold prices last week.
Since then, bullion has traded mainly around the $4,400 level.
Gold has remained within a relatively narrow range after recovering from lows near $4,000 in July.
The current price action suggests that investors are balancing support from a weaker dollar against concerns over inflation, interest rates and rising bond yields.
Oil Prices Add to Inflation Concerns
Gold’s upside has been limited by renewed inflation fears linked to disruptions around the Strait of Hormuz.
Oil prices climbed following renewed clashes involving the United States and Iran.
Brent crude moved closer to $100 per barrel, raising concerns that higher energy costs could increase inflationary pressures across the global economy.
Rising oil prices can complicate the outlook for gold because stronger inflation may encourage central banks to maintain higher interest rates.
Higher rates can reduce the appeal of non-yielding assets such as gold.
Federal Reserve Rate Expectations Remain in Focus
Investors are also closely watching the Federal Reserve’s next policy decision.
Markets are currently pricing roughly a 60% probability of a Fed rate hike next week.
Expectations shifted after stronger-than-expected US nonfarm payrolls data increased concerns that the economy remains strong enough to tolerate tighter monetary policy.
A more hawkish Federal Reserve outlook could place additional pressure on gold.
US Inflation Data Could Drive the Next Move
Attention is now turning to upcoming US consumer price data.
The inflation report could play an important role in determining whether expectations for a Federal Reserve rate hike remain elevated.
If inflation comes in stronger than expected, markets could increase bets on tighter monetary policy.
That could push Treasury yields and the dollar higher, potentially creating further pressure on gold prices.
On the other hand, softer inflation could reduce rate-hike expectations and provide additional support for bullion.
Treasury Yields Could Remain a Headwind
Tony Sycamore, senior market analyst at IG, noted that gold ended the previous session near $4,406.
The metal came under pressure following the strong US jobs report and higher energy prices.
Those factors could also push US Treasury yields higher.
Rising yields tend to weaken demand for gold because investors can earn higher returns from interest-bearing assets such as government bonds.
China’s Central Bank Continues Buying Gold
Despite these pressures, strong central bank demand continues to provide support for gold prices.
The People’s Bank of China accelerated its gold purchases in August.
Its monthly buying reached the highest level since 2023, even as bullion prices remained historically elevated.
Continued purchases from China and other central banks have become an important source of long-term demand for the precious metal.
Gold Outlook Depends on Dollar, Fed and Oil Prices
Gold remains supported by weakness in the US dollar and continued central bank buying.
However, rising oil prices, inflation concerns and expectations for tighter Federal Reserve policy are limiting the metal’s upside.
Investors will now focus on US inflation data, Treasury yields and the Fed’s upcoming policy decision for clues about gold’s next major move.
The direction of the Japanese yen and US dollar could also remain important as currency markets react to expectations for higher interest rates in Japan.
