Gold Bounces Off One-Week Low Amid Central Bank Expectations
Gold prices have rebounded from a one-week low of $4,340, but analysts believe that any further gains may be capped due to hawkish central bank expectations and inflation risks.
The US dollar remains depressed, with the Bank of Japan-inspired rally in the Japanese yen keeping it near its lowest level in over two weeks. This has benefited gold prices, but traders are cautious ahead of Thursday's release of US inflation data.
Strategists at BNY argue that the latest labour market data have firmly re-anchored expectations for further Fed tightening, with a 25 basis point rate hike by the European Central Bank considered a done deal. The Reserve Bank of Australia is also weighing a potential rate increase later this month.
The escalating US-Iran tensions are limiting deeper losses for the safe-haven USD and capping gold prices, according to analysts. This has underpinned prospects for Fed tightening, which should act as a tailwind for the USD and keep a lid on gold prices.