Gold Prices Rebound as Investors Await Critical US Inflation Data

Gold prices erased their losses in the second half of the week after investors struggled to decide on the Federal Reserve's next move. The yellow metal declined sharply in the first half, weighed down by hawkish comments from Fed Chair Kevin Warsh at the Jackson Hole Symposium and the deepening crisis in the Middle East.

The US and Iran exchanged military strikes over the weekend, with the US forces attacking two rocket launchers on Larak Island and Iran targeting US bases in Jordan and the UAE. The escalation of the conflict dragged Gold down to its lowest level since early August, below $4,300 by Wednesday.

However, after the weaker-than-expected private sector employment data from the US weighed on the USD, and a sharp decline seen in the USD/JPY pair hinted at possible currency market intervention, Gold began to recover. The key remark by Fed Governor Christopher Waller that he would consider holding the policy rate steady in September if August inflation shows continued progress, but would consider a hike if the data come in hot, underscored a finely balanced, data-dependent reaction function.

The CME FedWatch Tool's probability of a 25 basis points rate hike at the upcoming meeting declined to 50% from about 63% earlier in the week. Gold climbed above $4,500 late Thursday, erasing its weekly losses in the process. Strategists at TD Securities emphasized that 'we do not anticipate material downside for the yellow metal as the landscape for precious metals has improved amid a renewed Dollar debasement theme, while Fed hikes remain far from certain.'

However, Gold failed to build on its recovery heading into the weekend, awaiting critical US inflation data. The August Consumer Price Index (CPI) data will be the final and most important clue on whether the US central bank will opt for a rate hike.