Gold rises on Middle East tensions, but Fed's cautious outlook caps gains

Synopsis

Gold prices saw a slight increase due to safe-haven demand amidst Middle East tensions, although gains were limited by the Federal Reserve's indication of a slower approach to future rate cuts. Heightened geopolitical concerns, particularly involving potential U.S. involvement in strikes on Iranian sites, contributed to the demand.

Gold prices edged higher on Thursday, supported by safe-haven demand amid uncertainty in the Middle East, although gains were capped as traders assessed the U.S. Federal Reserve's signal of a slower pace for future rate cuts.

FUNDAMENTALS

* Spot gold was up 0.3% at $3,378.86 an ounce, as of 0033 GMT. U.S. gold futures fell 0.4% to $3,395.80.

* Geopolitical tensions remained heightened as U.S. President Donald Trump on Wednesday refrained from confirming whether the U.S. would join Israel's bombardment of Iranian nuclear and missile sites, prompting residents of Tehran to leave the city amid ongoing air strikes.

* The U.S. military has moved some aircraft and ships from bases in the Middle East that may be vulnerable to any potential Iranian attack, two U.S. officials told Reuters on Wednesday.

* The Fed held interest rates steady on Wednesday, policymakers still forecast slashing rates by half-a-percentage point this year, but have slowed the pace of future cuts.

* However, Fed Chair Jerome Powell cautioned against putting too much weight on this outlook, warning of "meaningful" inflation ahead as higher import tariffs loom.

* Futures on the federal funds rate, which measure the cost of unsecured overnight loans between banks, raised the odds the Fed would resume cutting interest rates at the September meeting, with a roughly 64% probability.

* Signalling continued challenges in the labour market, data showed the number of Americans filing new applications for unemployment benefits fell last week, but remained at levels consistent with a further loss of labour market momentum in June and softening economic activity.

* The U.S. dollar index traded higher against most major currencies after the Fed kept interest rates unchanged. A higher dollar makes greenback-priced bullion more expensive.

* Elsewhere, spot silver was steady at $36.75 per ounce, platinum rose 1% to $1,335.93, while palladium gained 0.6% to $1,054.40. DATA/EVENTS (GMT) 1100 UK BOE Bank Rate June.

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