Gold Surges to Three-Week High on Weaker Dollar Amid Inflation Concerns
Gold has broken through a key technical barrier and is now eyeing $4,600 as the US Dollar weakens ahead of crucial PMIs. The precious metal has been on an uptrend for three consecutive weeks and its latest gain brings it to its highest level since late May. Traders have scaled back their bets on an immediate interest rate hike by the Federal Reserve after last week's inflation data showed signs of cooling price pressures, keeping the USD depressed near its lowest point in over three months.
The latest US Treasury Department plan to double the size of some long-dated debt buyback operations remains supportive of elevated US bond yields. However, investors remain concerned about inflation risks stemming from higher oil prices, which have been bolstered by the US-Iran standoff over the Strait of Hormuz. Yemen's Iran-backed Houthi militant group has claimed to have targeted eight oil tankers since declaring a maritime blockade on Saudi shipping in late July.
The Federal Reserve Minutes from the July 28-29 FOMC meeting revealed that Fed officials indicated the need to raise interest rates soon unless there was more progress on bringing down inflation. CME Group's FedWatch Tool indicates that investors are still pricing in around a 68% chance of at least one rate hike by year-end.
Geopolitical uncertainties, including President Donald Trump's threat to launch the 'most crushing economic operation' against Iran, may limit deeper losses for the safe-haven buck and hold back bullish traders from positioning for further gold gains.