Gold advances as traders watch US inflation for rate hike clues

Gold prices climbed on Wednesday as traders awaited US inflation data that could shed light on the Federal Reserve's interest rate trajectory. The precious metal rose as much as 0.6 per cent to approach US$4,400 an ounce, a day after slipping from a two-month peak. Pakistan's Defence Minister indicated that the US and Iran were nearing an agreement to reopen the Strait of Hormuz, despite both parties appearing to harden their positions on the vital waterway.

This development has raised doubts about the Federal Reserve's inclination towards a rate hike, as traders refrained from making substantial bets before the inflation report due later on Wednesday. Interest rate swaps suggest a near 50-50 chance of a quarter-point increase in September. The consumer price index is expected to increase by 0.1 per cent in July, following a 0.4 per cent decline in June, according to a Bloomberg survey of economists.

Despite a weak jobs report on Friday, a slowdown in price growth could ease some inflation concerns at the Fed. However, if energy prices fuel more inflation, it could bolster the case for a more aggressive monetary policy, which is generally unfavorable for gold. Brent crude oil prices surged for the sixth consecutive day, while the Bloomberg Dollar Spot Index remained steady after a previous decline.