Gold prices slipped on Friday after surrendering gains from a 10-week high, with traders balancing a less hawkish outlook for the U.S. Federal Reserve against lingering uncertainty about efforts to reopen the Strait of Hormuz.
At 20:49 ET (00:49 GMT), XAU/USD fell 0.4% to $4,335.56 an ounce, while Gold Futures dropped 0.7% to $4,391.34. Silver (XAG/USD) slipped 0.6% to $64.09 an ounce and platinum (XPT/USD) declined 0.5% to $1,710.58. The U.S. Dollar Index was down about 0.1% at 99.90.
Despite the pullback, bullion was poised to record a second straight weekly advance after softer U.S. inflation readings reduced the immediate pressure on the Fed to tighten policy further.
Inflation data and Fed expectations
Thursday's retreat — a 1.3% decline on the session — followed a run-up to the 10-week high and reflected some market reassessment after subdued U.S. inflation prints. Those readings suggested the inflationary impact from the energy shock tied to the U.S.-Iran conflict eased in July.
Money markets currently assign roughly a one-in-three probability of a September rate increase. Investors will receive additional employment data ahead of the Fed's next meeting, and will closely monitor remarks from Chair Kevin Warsh at the central bank's Jackson Hole symposium later in the month.
ANZ commented that the latest U.S. producer-price data bolster the view that rate pressure has lessened. Headline PPI was unchanged in July, while core PPI rose 0.2% from the prior month, with both readings coming in below consensus.
The softer PPI followed this week's consumer price report, which also indicated relatively contained price pressures. Taken together, the CPI and PPI prints support the case for the Fed to keep policy on hold in September, though upcoming inflation and employment releases will determine whether that assessment holds.
For gold, the prospect of no immediate Fed rate increase is supportive because bullion does not yield interest income. Still, ANZ noted that profit-taking has surfaced following the recent rebound, particularly after the metal climbed through its 100-day moving average, a key technical level.
Geopolitical risk and energy markets
At the same time, the inflation outlook remains tightly linked to developments in the Middle East. Market participants continue to track efforts by Washington and Tehran to end hostilities and reopen the Strait of Hormuz. The outcome of those talks carries significant implications for energy prices and, by extension, inflation.
Any renewed escalation could drive oil prices higher and bring inflation back into focus, strengthening the argument for tighter monetary policy. Conversely, a durable reopening of the waterway would ease supply pressures and reduce a key inflation risk that has clouded the Fed outlook since the U.S.-Iran conflict began in late February.
Gold's recovery above the psychologically important $4,000-an-ounce threshold in recent weeks was supported by renewed investor demand and stronger central-bank buying, particularly from China. The metal moved above its 100-day moving average for the first time since April earlier this week, although it has since slipped back below that level.
ANZ reiterated that while softer inflation lowers the immediate odds of a Fed hike, the combination of Middle East energy uncertainties and stretched market positioning leaves gold vulnerable to a period of consolidation and profit-taking.
Market context and what to watch
Investors will be watching upcoming labor market data and further inflation releases for indications on whether the Fed's current stance remains appropriate. Geopolitical developments around the Strait of Hormuz will continue to be a focal point for energy markets and inflation expectations.
In the near term, bullion's trajectory appears to be governed by the interplay between a cooling U.S. inflation backdrop that reduces near-term rate-hike risk, and geopolitical developments that could swiftly alter energy-driven inflation dynamics.