Gold Rebounds Above $4,400 Amid Dollar Weakness and Middle East Tensions
The price of gold (XAU/USD) rebounded from a one-week low to retake $4,400 before the European session on Wednesday. This ended a three-day decline as the US Dollar stayed near a more than two-week low after a Bank of Japan-fuelled rally in the Japanese yen.
The US attacked Iranian oil tankers in the Gulf of Oman and near Kharg Island, prompting Iran to fire over 30 missiles at US forces at the Al Azraq base in Jordan. The risk premium pushed crude to a three-month high, feeding inflation concerns ahead of US PPI on Thursday and CPI on Friday.
Rising real yields are expected to cap gold's upside due to its historical negative correlation with rising 10-year real yields during tightening cycles. A 25 basis point European Central Bank increase on Thursday is widely seen as assured, while markets have fully priced a BoJ hike at the 17-18 September meeting.
The escalating conflict in the Middle East has pushed crude oil to a three-month high, adding a 3% to 5% geopolitical risk premium to commodity prices. However, this safe-haven rally is likely to be short-lived due to higher energy costs fueling inflation and central bank hawkishness.