Gold Steadies After Fresh US Strikes in Iran Cloud Rate Outlook

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(Bloomberg) — Gold traded in a narrow range as investors sought clues on the Federal Reserve’s outlook for interest rates, with renewed US airstrikes on Iran stoking concerns around a return to higher energy prices and inflation.

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Bullion was near $4,100 an ounce, little changed after giving up 1.4% in the previous session. US Central Command said it launched “powerful strikes” in retaliation for Iranian attacks on shipping in the Strait of Hormuz, just hours after Washington revoked a waiver that had allowed Tehran to sell oil globally. Crude prices advanced.

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Any rebound in energy prices will reinforce expectations that the Fed may keep interest rates higher for longer to combat stubborn inflation. Elevated borrowing costs are typically a headwind for gold, which doesn’t pay interest, while a stronger dollar has also made bullion that’s priced in the US currency more expensive.

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Traders will be watching for clues to the interest-rate outlook when the minutes of the Fed’s June meeting are released later Wednesday. Bullion slumped after that meeting, as new Fed Chair Kevin Warsh leaned more hawkish than markets had anticipated, but weaker-than-expected jobs data last week dimmed the likelihood of a near-term rate cut and pulled gold back above the $4,000-an-ounce threshold.

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“All the gold and silver markets care about at the moment is the question if the US Federal Reserve will raise interest rates or not,” Carsten Menke, head of next-generation research at Julius Baer Group Ltd., said in a note. “We do not expect the Fed to raise rates, as part of the inflationary pressure should turn out to be temporary,” he said.

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Gold is down by more than a fifth since the Iran war started in late February, with a wave of profit-taking bringing a three-year bull run to an end and pushing the metal into a bear market last month. There’s little evidence yet, however, that investors are putting on large-scale short positions in anticipation of further declines.

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China’s central bank purchased more gold in June, extending its longest buying streak since at least 2015 and underscoring a commitment to diversifying its reserves despite the recent price volatility. The latest survey from the World Gold Council in June showed that more central banks than ever expect to increase their reserves in the coming year.

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Central-bank buying is still “the strongest structural force in the market,” Menke said. “That said, a lot of damage has been done and it will likely take some time for the market to find its footing.”

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Spot gold edged down 0.1% to $4,101.28 an ounce at 9:05 a.m. in Singapore. Silver slipped 0.2% to $59.86 an ounce. Platinum and palladium declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, advanced for a second day.

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