Gold edges higher as traders weigh prospects for Fed rate hike

Gold prices rebounded slightly on Thursday, hovering near a nine-week low, as escalating tensions in the Strait of Hormuz fueled concerns over inflation and prompted expectations of a potential Federal Reserve interest rate hike. By 21:36 ET, the price of XAU/USD climbed 0.6% to $4,134.19 per ounce, while Gold Futures gained 0.4% to $4,158.30.

XAG/USD rose 1% to $60.37, and XPT/USD increased 1.7% to $1,661.28. The U.S. Dollar Index remained relatively stable at 102.23. Iran has intensified assaults on vessels navigating the Strait of Hormuz, exacerbating apprehensions regarding the safety of a vital international energy conduit. The White House is also mulling potential military interventions against Iranian targets prior to the November U.S. midterm elections.

Although Middle East oil shipments have returned to near pre-conflict levels, the heightened risks along the waterway have driven shipping expenses to record highs. A tropical storm in the Gulf of Mexico further strained energy supplies, with MMA reporting that 25% of Gulf oil production was halted. The ongoing U.S.-Iran conflict, now in its seventh month, has resulted in a nearly 20% decline in gold prices since the war started in late February.

Escalating energy expenses have contributed to inflation and tighter monetary policy, negatively impacting gold as a non-interest-bearing asset. The latest Federal Reserve meeting minutes, released by all 19 policymakers, supported the September rate increase, with many believing another increase would be warranted by year-end. Anticipated market pricing now suggests a 20% chance of an October rate hike, with an 80% likelihood of a hike by December.

Rising Treasury yields and a stronger dollar have also dampened investor interest in gold. The U.S. dollar was trading near its highest level of the year, making dollar-denominated bullion more costly for buyers using different currencies. However, central bank demand has offered a significant buffer. ANZ analysts reported in a statement that substantial purchases by central banks helped mitigate gold's losses despite the negative impact of higher bond yields, a stronger U.S. dollar, and renewed energy-driven inflation concerns.

China, one of the world's largest gold buyers, has been accelerating its gold acquisitions in recent months, following a price decline. The People's Bank of China added 740,000 ounces to its reserves in September, marking its 23rd consecutive month of accumulation. This ongoing official-sector demand is helping counter some of the near-term pressure from higher yields, a stronger dollar, and renewed concerns over energy-driven inflation.