Gold prices moved higher on Thursday as investors waited for new US inflation data. Spot gold rose 0.4% to $4,418.87 an ounce at 02:40 ET (06:40 GMT). Gold futures also rose 0.03% to $4,461.82 an ounce.
Investors are watching the inflation data because it could affect the Federal Reserve’s next interest-rate decision. The US dollar also fell slightly, helping gold prices stay near $4,400. The US Dollar Index fell to 98.74. A weaker dollar usually helps gold because gold is priced in US dollars. Gold prices rose even as US Treasury yields stayed high. Higher bond yields can make gold less attractive because gold does not pay interest.
US Treasury yields rise
Higher US Treasury yields are one factor limiting gold’s gains. US 10-year Treasury yields rose after the government announced a plan to purchase up to $6 billion of longer-dated debt. Rising Treasury yields can put pressure on gold because investors can earn higher returns from interest-paying assets. Since gold does not generate interest income, its opportunity cost increases when bond yields rise.
Oil prices hit $100
Oil prices have also climbed sharply, adding to market concerns about inflation. Brent crude reached $100 a barrel, its first move to that level since July. Higher oil prices can increase inflation pressure because energy costs affect businesses and consumers. Investors are therefore watching both oil prices and upcoming US inflation data for clues about the economy and interest rates.
Also read: S&P 500, Dow futures attempt recovery as oil tops $100: What to know
US inflation data in focus
The Middle East conflict is another major factor keeping markets cautious. Iran has said it is ready for a more intense conflict if US attacks on its territory and infrastructure continue. Ongoing geopolitical tensions are keeping investors focused on safe-haven assets such as gold.
US inflation data is now the biggest near-term focus for gold traders. The US Producer Price Index (PPI) is due on Thursday. The Consumer Price Index (CPI) is scheduled for Friday. The data could also change expectations for what the Federal Reserve will do with interest rates at its next meeting.
Fed rate bets matter
Markets are already pricing in a chance of a US interest-rate increase this month. Swaps markets were assigning about a 65% probability of an interest-rate increase this month, according to the supplied information. A higher-than-expected inflation reading could strengthen expectations for tighter Fed policy. A softer inflation reading could have the opposite effect by supporting expectations for easier monetary policy.
IG analyst Tony Sycamore said the weaker dollar helped gold despite higher bond yields. Sycamore, senior market analyst at IG, said gold ended the previous session at around $4,402, according to Reuters. He said the weaker US dollar provided support to gold even though Treasury yields were rising. This shows that several forces are currently pulling gold prices in different directions.
The key question for gold now is whether inflation will change Fed expectations. Gold is holding close to $4,400 as traders wait for the PPI and CPI reports. A weaker dollar and strong investment demand are supporting the metal. Higher Treasury yields, elevated oil prices and uncertainty over Fed policy are creating pressure. The upcoming US inflation data could determine which of these forces has the biggest impact on gold in the near term.
