Gold firms on softer dollar, inflation data and Mideast risks in focus

Gold prices rose on Wednesday as the US dollar remained weak and investors focused on the outlook for interest rates amid renewed tensions between the US and Iran. Spot gold climbed 0.6% to $4,381.32 per ounce, while US gold futures fell 0.3% to $4,424.70. The US dollar's lack of movement made dollar-priced metals more accessible for holders of other currencies.

Analyst Kelvin Wong noted that the gold market's short-term dynamics were uncertain, with potential movements lasting until the release of the CPI report. While hawkish Fed expectations weighed on gold, the dollar debasement trade and fiscal deficit concerns supported prices. Investors were also watching upcoming US producer price index data on Thursday and consumer price index data on Friday.

Tensions escalated when Iran's Revolutionary Guard fired ballistic missiles at a US military base in Jordan and attacked 10 ships, following the US destruction of five Iranian oil tankers. This conflict contributed to a 4th consecutive day of rising Brent crude prices. Higher energy costs could exert upward pressure on inflation.

The CME FedWatch Tool indicated a 60% chance that the Federal Reserve would raise interest rates at its upcoming meeting. Although gold is seen as an inflation hedge, higher rates make it less appealing. Commodity strategist Kelly Xu said that precious metals faced a near-term test, but a major selloff was unlikely. Tight physical markets and structural supply deficits, driven by inelastic mine production and demand for electrification, electronics, and AI infrastructure, provided fundamental support for silver in the longer term.

Spot silver increased 0.9% to $66.31, platinum rose 1.1% to $1,833.58, while palladium dropped 0.1% to $1,347.82.