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(Bloomberg) — Gold steadied, as traders weighed prospects for a deal to reopen the Strait of Hormuz while awaiting US inflation data that could provide fresh clues to the Federal Reserve’s interest-rate path.
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Bullion was near $4,370 an ounce in early trading, after pulling back from a two-month high on Tuesday to end the session down 0.5%. Pakistan’s defense minister said the US and Iran are “close to some sort of arrangement” to reopen Hormuz, even after both sides appeared to toughen their stances on the waterway that’s crucial to global energy flows.
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A rebound in oil prices as deadlock persists in the Middle East has clouded the outlook on the Fed’s appetite for a rate hike, with traders holding back from large bets ahead of the inflation report due later Wednesday. Interest-rate swaps show traders see the odds of a quarter-point increase next month as virtually a coin toss.
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The closely watched consumer price index is seen rising 0.1% in July following a 0.4% decline in the prior month, according to the median projection in a Bloomberg survey of economists. In the wake of Friday’s weak jobs report, a moderation in price growth may help alleviate some of the inflation anxiety at the Fed.
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However, momentum for a more aggressive monetary policy — typically a negative for gold, which doesn’t pay interest — will build if higher energy prices exert more inflationary pressure. Oil held a four-day gain on Wednesday.
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“The macro backdrop has turned more supportive, but remains fragile,” Ole Hansen, head of commodity strategy at Saxo Bank AS, said in a note. “A softer dollar and reduced expectations for additional Fed tightening have helped precious metals, but renewed inflation pressure, another oil-price surge or stronger US data could quickly revive rate-hike expectations,” he said.
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Gold has rallied above the $4,000-an-ounce support threshold in recent weeks, with renewed investor appetite for the precious metal backed by an increase in central bank purchases, notably from China. Bullion traded above the 100-day moving average earlier this week before its retreat on Tuesday.
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“Gold has defended the downside but has yet to confirm a renewed bull-market advance,” Hansen said. “Support around $4,200 is increasingly important, while the major upside test is once again focusing on the 200-day moving average, currently sitting just below $4,500.”
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Spot gold edged down 0.1% to $4,367.56 an ounce at 7:33 a.m. in Singapore. Silver rose 0.1% to $64.72 an ounce. Platinum and palladium were little changed. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after ending the previous session down 0.1%.
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