Gold Hovers Near Seven-Week High Ahead of US Inflation Report

Gold prices hovered near a seven-week high on Monday as investors anxiously awaited this week's US inflation report. The metal is caught between two opposing forces: economic data that can influence interest-rate expectations and big, patient buyers who don't trade daily. The Federal Reserve's next move will depend on Wednesday's consumer price index (CPI) report, where economists expect inflation to cool slightly to 3.4% year-over-year from 3.5% in June.

If the CPI reading comes in hotter than expected, markets often price in higher policy rates, lifting the US dollar and 'real yields', returns after inflation. This would make non-yielding gold less appealing, potentially pushing prices down to around $4,357. On the other hand, a cooler reading could ease pressure on the metal, making it easier for prices to hold near recent highs.

China's central bank added the most gold to its reserves since October 2023, indicating official-sector demand may be providing a steadier floor even when macro headlines jolt sentiment. However, this consistent demand won't cancel out CPI-driven volatility. The market will closely watch Wednesday's report to gauge what the Federal Reserve might do next.