Gold prices fluctuated ahead of a closely contested interest rate decision due from the Federal Reserve later on Wednesday, while attacks in the Middle East escalated after a brief lull.
The price of the precious metal moved within a narrow range after falling by 1.1% in the previous session, holding steady near $4,030 an ounce during afternoon trading in Asia.
Interest rate swaps indicate a roughly 33% probability that the Federal Reserve will raise borrowing costs by a quarter of a percentage point, an unusually high level of uncertainty so close to the decision, by the standards of recent years. Higher borrowing costs are typically a negative factor for gold, which does not offer a yield.
Policymakers are likely to be torn between June's lower-than-expected inflation reading and the recent surge in oil prices that accompanied renewed fighting between the United States and Iran this month. Brent crude, the international benchmark, jumped nearly 4% to above $87 a barrel on Wednesday, after the U.S. military announced it had repelled an Iranian attack on bases in the Persian Gulf region.
Ahmed Al-Asiri, a strategist at Pepperstone Group, said the upcoming interest rate decision could be a pivotal factor for gold in the next phase. He added: “If monetary policymakers adopt a more hawkish tone than expected, which would increase the likelihood of interest rate hikes or indicate growing concern about inflation, gold is likely to come under some pressure.”
Gold holds steady at the $4,000 support level
Gold has fallen by about a quarter since the start of the war between the United States and Iran five months ago, as high energy prices have fueled inflationary pressures and increased the likelihood that interest rates will remain high for longer.
However, the metal has remained close to the key support level of $4,000 an ounce since late June, supported by a wave of buying on lower prices.
Al-Asiri pointed out that the technical indicators appear stable, adding that this represents a positive sign in light of rising bond yields.
Meanwhile, President Donald Trump hosted Israeli Prime Minister Benjamin Netanyahu at the White House on Tuesday, seeking to pave the way for further diplomatic efforts. The United States halted its airstrikes on Iran in recent days after launching attacks that lasted for nearly two weeks.
Spot gold rose 0.1% to $4,033.32 an ounce at 6:56 a.m. in London. Silver climbed 1.1% to $57.76 an ounce, after losing more than 2% in the previous session.
Platinum fell, while palladium rose slightly, and the Bloomberg Dollar Spot Index, a measure of the US currency, declined by 0.1%.
