Gold Corrects Lower Amid Ongoing Middle East Tensions and Decreasing Fed Hike Expectations

Gold (XAU/USD) continued its rally in the first week of August, touching a fresh two-month peak near $4,450 as markets scaled back bets for a Federal Reserve (Fed) interest rate hike in September.

The crisis in the Middle East remained unresolved, however, causing Gold to correct lower and end the week virtually unchanged. Investors will pay close attention to comments from Fed officials and assess developments surrounding the US-Iran conflict in search of directional clues.

Gold's price action was influenced by various economic data releases, including disappointing US employment figures, which weighed on the US Dollar (USD). However, the USD came under renewed bearish pressure after the Bureau of Labor Statistics announced a softer annual producer inflation rate of 4.7% in July.

The CME Group FedWatch Tool's probability of a 25 basis points Fed rate hike in September declined below 35% from about 45% a week earlier, further supporting Gold's price. Analysts at MUFG noted that the US Dollar has continued to trade on a softer footing this week, encouraged by scaling back of Fed rate hike expectations.