Gold hovered near $4,400 an ounce, as traders awaited US inflation data due later this week for clues as to whether the Federal Reserve will hike interest rates this month.
Bullion traded in a narrow range, erasing gains from earlier in the day. Traders are bracing for a raft of economic data this week that could shift prices, including the August US producer price index due later Thursday.
Gold has stayed largely in a range either side of $4,400 in recent weeks as traders try to gauge the outlook for Fed policy, with higher rates a headwind for the non-yielding metal. Swaps traders are currently pricing in a roughly 60% chance of a hike at next week’s meeting.
“We would expect a September hike to generate a knee-jerk correction, but not to derail the broader recovery,” UBS Group AG strategist Joni Teves wrote in a note. “A hold would likely deliver a stronger upside response.”
Surging energy prices in particular have continued to press interest rate expectations higher. Brent crude was above $100 a barrel again Thursday as Iran vowed it was prepared for a more intense war after hostilities flared across the Middle East, stoking fears about deeper disruptions through the Strait of Hormuz.
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A rate rise increases the opportunity cost of holding gold, but the market “has largely priced in this risk,” Standard Chartered Plc analysts including Sudakshina Unnikrishnan wrote in a note. The bank expects the Fed to remain on hold this year, with gold prices recovering in the coming months as the focus shifts to potential de-dollarization, the theme of debasement, and risks of bond market intervention, they said.
The perception that efforts to constrain US borrowing costs in the face of swollen deficits and debt levels would gradually erode the value of the dollar was a key driver of gold’s roughly 10% gain in August, in a revival of the so-called “debasement trade.” On Wednesday, the Treasury underwhelmed markets with a plan to buy up to $6 billion of longer-dated debt, which failed to halt a sell-off in long-dated bonds.
“The metal’s strength reflects a deeper unease building around US fiscal pressures, which continue to chip away at confidence in the long-term value of government debt — and, by extension, the currency used to finance it,” said Renisha Chainani, chief research officer at Mumbai-based bullion trader Augmont Enterprises Ltd. “Gold looks set to trade in a $4,300-to-$4,500 range, favoring a buy-the-dip, sell-the-rally approach for now,” she said.
Spot gold was 0.2% lower at $4,392.38 an ounce at 10:30 a.m. in London. Silver fell 1% to $66.64 an ounce, after adding 2.4% on Wednesday. Platinum fell 1.7%, and palladium edged lower. The Bloomberg Dollar Spot Index was flat.
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