In the early Asian trading session on Wednesday, the price of gold (XAU/USD) is maintaining slight gains near $2,465. The upward movement of the precious metal could be supported by safe-haven flows driven by escalating tensions in the Middle East. Market participants are eagerly anticipating the release of the US Consumer Price Index (CPI) for July later in the day.
The ongoing geopolitical uncertainties in the Middle East are expected to bolster demand for safe-haven assets, potentially lifting the value of gold in the short term. Reports from the BBC highlighted that the United States has dispatched a guided missile submarine to the Middle East in response to mounting tensions in the region. These actions follow concerns of a broader regional conflict following the recent targeted assassinations of senior Hezbollah and Hamas figures. Analysts at Saxo Bank A/S emphasized that gold continues to be “supported by geopolitical risks and the expectation of Federal Reserve rate cuts amidst heightened tensions involving Iran, Israel, and Ukraine.”
During discussions on Tuesday, Atlanta Fed President Raphael Bostic expressed increased confidence in the Fed’s ability to steer inflation back to its 2% target, citing recent economic indicators. However, Bostic emphasized the need for additional evidence before supporting a decision to lower interest rates.
The upcoming US CPI inflation report is poised to offer insights into the Federal Reserve’s potential interest rate trajectory. Projections suggest a 0.2% month-on-month increase in July, a shift from the previous month’s 0.1% decline. Yearly CPI inflation is anticipated to moderate to 2.9% in July from 3.0% in June.
A softer CPI reading could heighten expectations of a Fed rate cut in September. Conversely, an uptick in inflation figures might reduce the likelihood of Fed easing measures, potentially exerting selling pressure on gold, a non-yielding asset. The market awaits the CPI data to gauge potential implications for future Fed policy decisions and their impact on gold prices.
