Gold prices are exhibiting volatility, trading between $4,412 and $4,430 per ounce during the Asian session, with a global reference level around $4,420 per ounce. This fluctuation is attributed to a push-and-pull between geopolitical risks and hawkish monetary policy expectations.
On one hand, escalating retaliatory attacks between the US and Iran in the Strait of Hormuz have fueled concerns over disruptions to Middle Eastern oil supplies, driving up crude prices. Brent crude futures rose by 0.54% to $96.89 per barrel, and West Texas Intermediate (WTI) increased by 0.72% to $92.14 per barrel, near its highest level since July. These rising oil prices contribute to inflationary pressures, which typically support gold as an inflation hedge. Additionally, the US Dollar Index, which tracks the Greenback against a basket of six major currencies, is hovering around 98.95, down nearly 0.20% on the day, near two-week lows, providing some support for gold.
Conversely, stronger-than-expected US jobs data has significantly increased the probability of a Federal Reserve interest rate hike. US Nonfarm Payrolls rose by 162,000 in August, well above the forecast of 56,000, while the Unemployment Rate remained steady at 4.1%. Markets are now pricing in around a 58% chance of a rate hike at the Fed's September 15-16 meeting. Higher interest rates increase the opportunity cost of holding non-yielding gold, thereby putting downward pressure on its price. The 10-year US Treasury yield is near 4.7840%, close to its highest since late 2023, and could approach 5% if upcoming CPI data is strong.
The Japanese Yen has strengthened considerably, rising over 0.2% to 155.88 yen per dollar, with markets anticipating a 75% chance of a 0.25 percentage point rate hike by the Bank of Japan at its September 18 meeting. This broad Japanese Yen strength has contributed to the US dollar's weakness, offsetting some of the downward pressure on gold from hawkish Fed expectations. Holdings in the SPDR Gold Trust, the world's largest gold ETF, have decreased, with the fund selling over 1.4 tons of gold on September 4, bringing its holdings to 1,052 tons.
Overall, gold remains caught between these opposing forces, with traders closely watching Fed rate expectations, particularly ahead of this week's US Consumer Price Index (CPI) data, and developments in the Middle East. Thin trading conditions on Monday due to the US Labor Day holiday could exaggerate price movements.
