Gold steady as hot US inflation bolsters chance of rate hike

Gold prices stabilized on Friday as US inflation surpassed expectations, hinting at the likelihood of the Federal Reserve raising interest rates. The precious metal was trading close to $4,350 per ounce, having dipped for the third consecutive week. Inflation rose in August, with the core consumer price index increasing 0.3% from the previous month.

Gold finished the day higher, but remains 1.8% lower for the week. The latest inflation figures heighten the pressure on the Fed to implement its first rate hike in three years, with traders estimating a near 90% probability of such a move. Higher interest rates typically negatively impact gold, which does not yield interest. JPMorgan's Asia head of rates & FX strategy, Yuxuan Tang, explained that a rate hike could push real yields down, reigniting concerns about policy credibility and currency devaluation, which could support gold.

Meanwhile, escalating Middle East conflict drove oil prices higher, exacerbating inflationary pressures. Brent crude rose towards $107 per barrel, after surging nearly 9% last week. A planned meeting in early September between Iran and several Gulf nations to establish a temporary shipping lane in the Strait of Hormuz has been postponed, leaving the resolution of this issue still uncertain.

Since bouncing from a low near $4,000 in early August, gold has mostly fluctuated around $4,400 per ounce. Despite short-term challenges, many investors still anticipate gold to gradually rise as it regains its traditional role as a portfolio hedge.