Gold Bounces on Weaker Dollar, Fading Rate Hike Expectations

Gold prices rebounded on Friday after falling to a fresh weekly low of $4,311, as the US Dollar softened and expectations of an imminent Federal Reserve interest rate hike faded. The precious metal currently trades around $4,350.

The US Consumer Price Index (CPI) and Producer Price Index (PPI) releases showed that inflationary pressures are gradually easing, while weaker-than-expected July Nonfarm Payrolls (NFP) cast doubt on the labour market's strength.

Analysts at MUFG noted that the slowdown in private employment and wage growth, alongside limited evidence of higher energy prices spilling over into core inflation, is providing more leeway for the Fed to leave rates on hold. The CME FedWatch Tool now prices in around a 70% chance that the Fed will keep borrowing costs unchanged in September.

The inflation outlook remains uncertain, with inflation still running above the Fed's 2% target and the impact of the energy shock not yet fully faded. Oil prices remain elevated due to uncertainty over the reopening of the Strait of Hormuz.