Gold rises as the dollar falls and rate-hold expectations strengthen

Gold prices rose on Friday, supported by a decline in the dollar after U.S. inflation data released this week suggested that the Federal Reserve (the U.S. central bank) would keep interest rates unchanged next month.

Spot gold increased by 0.6 percent to $4,376.02 per ounce. Prices had fallen 1.3 percent in the previous session as investors took profits after touching their highest level since June 5. The precious metal had risen by about 0.7 percent since the beginning of the week. U.S. gold futures for delivery rose 0.3 percent to $4,433.90 per ounce. Jim Wickoff, a market analyst at the American Gold Exchange, said, “The decline in the dollar index is a positive out-of-market factor, which supports gold today.” The dollar index fell by 0.3 percent, making gold more affordable for foreign buyers. Gold also received support from an unexpected drop in U.S. non-farm payrolls in July and from this week’s inflation data, which largely aligned with expectations. This led to a noticeable decline in expectations for an interest rate hike next month. Most analysts currently expect the U.S. central bank to keep interest rates in their current range of between 3.50 percent and 3.75 percent. Data from CME Group’s FedWatch tool showed that markets currently priced in a 31 percent probability of a Federal Reserve rate hike at its next meeting, down from 55 percent last week. Commerzbank said in a note, “We expect the Federal Reserve not to raise interest rates, so gold prices still have room to rise.”

Meanwhile, traffic through the Strait of Hormuz appeared to come to a complete halt on Friday after two more ships were attacked there, while the United States said it might maintain a naval blockade on Iran indefinitely. Oil prices moved to achieve weekly gains following this news. Wickoff added, “If crude oil prices continue to rise, it will be a negative factor for the metals market because it will contribute to higher inflation and push central banks to raise interest rates.”

In a related development, gold discounts in India widened to their highest level in more than two months. For other precious metals, spot silver rose one percent to $65.08 per ounce. Platinum increased by 0.9 percent to $1,733.34, and palladium rose 0.9 percent to $1,318.50.