Gold trimmed its weekly loss as some investors bought on dips after the precious metal broke below a key price level, even as escalating war tensions kept interest rate hike bets alive.
Bullion advanced as much as 1.2 per cent, above the key psychological level of US$4,000 an ounce, after earlier swinging between gains and losses, but was still headed for a weekly decline of more than two per cent. The United States and Iran clashed for a sixth straight day, with oil set for a weekly rally on the back of disruptions to energy shipments. Meanwhile, U.S. consumer sentiment rose in early July to a five-month high as lower gasoline prices boosted morale, with consumers expecting prices to rise at an annual rate of 4.2 per cent over the next year, down from 4.6 per cent in June.
The Iran conflict, now in its fifth month, is again driving up energy and commodity prices from fuel to raw materials used in manufacturing and food production. That’s kindling fears the Federal Reserve may eventually tighten monetary policy, even as soft U.S. economic data suggest a rate hike isn’t likely in the near term. Higher borrowing costs are a headwind for non-yielding bullion.
There was “some dip buying on breaks of US$4,000/oz,” said Ryan McKay, senior commodity strategist at TD Securities. “It should be expected that there is some softening in the inflation numbers as energy prices tanked in June, but more recent escalations will be keeping a lid on things and keeping Fed hike odds alive.”
Swap traders see just a 12 per cent likelihood that the Fed will raise interest rate at its next meeting in July, but have priced in at least one hike by the end of the year. Meanwhile, A growing chorus of Fed officials is expressing concern over high inflation and warning that the central bank might soon need to lift rates.
Bullion has hovered in a narrow range around US$4,000 an ounce in recent weeks after losing 14 per cent in the second quarter, its worst showing since 2013. It notched its worst monthly performance since the 2008 financial crisis in June.
Spot gold was up one per cent at US$4,016.13 an ounce at 12:54 p.m. in New York . Silver was 0.9 per cent higher at US$56.05. Platinum fell and palladium edged higher. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency, was 0.08 per cent higher.
—With assistance from Yihui Xie and Martin Alfonsin Larsen.