Gold Rebounds on Oil Price Drop, But Rate Hike Looms

Gold prices rebounded on Friday after a mid-week decline, thanks to a sharp drop in oil prices. The sudden spike in Brent crude the previous session, tied to fresh Red Sea shipping attacks, caused it to slide more than 4%. This reduction in energy matters because higher oil prices can keep inflation worries alive, pushing interest rates higher and making non-yielding assets like gold less attractive.

The bigger driver of gold's movement is the Federal Reserve's rate decision next week. Investors largely expect no change, but futures markets still imply a roughly 80% chance of a rate hike in September, according to CME FedWatch. This combination can keep bond yields and cash returns elevated even if the Fed pauses, limiting how far gold can run.

Analysts at ING believe the recent bounce looks like dip-buying and short-covering after a correction from earlier highs. They highlighted $4,000 as the key near-term level for gold prices.