Gold Holds Near Two-Month High as Inflation Data Cools Fed Rate Hike Bets

Gold prices held steady near a two-month high on Thursday, as a key U.S. inflation report came in softer than anticipated, tempering market expectations for an imminent interest rate hike by the Federal Reserve. The stability follows a rally in the previous session where the metal reached its highest point in over two months.

As of 22:11 ET (02:11 GMT), spot gold was trading around $4,407.78 an ounce, while gold futures were near $4,466.10, according to Investing.com data. The metal had advanced as much as 0.9% on Wednesday to approximately $4,450.

CPI Data Eases Rate Pressure

The primary catalyst for gold's recent strength was a U.S. government report showing consumer prices rose by only 0.1% in July from the prior month. This figure, which matched expectations, suggested that inflationary pressures from the Iran conflict and its impact on energy prices had not yet accelerated significantly.

In response to the data, financial markets adjusted their outlook on Federal Reserve policy. The probability of a rate hike at the central bank's September meeting fell to a range of 38%-40%, down from 46% before the report, according to the CME FedWatch tool. The Fed held its key interest rate at a range of 3.50%-3.75% during its July meeting.

Market Outlook and Headwinds

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Lower interest rates are typically bullish for gold, as they reduce the opportunity cost of holding the non-yielding asset. Investors are now looking ahead to Thursday's U.S. producer price report and comments from Fed Chair Kevin Warsh at the upcoming Jackson Hole symposium for further clues on monetary policy.

However, potential inflationary risks persist. Ongoing geopolitical tensions surrounding the Strait of Hormuz could drive energy prices higher, which may revive pressure on the Fed to resume tightening. Analysts also note key technical levels for gold, with resistance seen near $4,450 and the 200-day moving average around $4,499, according to Tony Sycamore, a senior market analyst at IG.

Supporting Factors

Gold's position has been supported by several factors beyond the immediate inflation outlook. The metal has benefited from holding above the psychologically important $4,000 level and recently crossed its 100-day moving average for the first time since April, an encouraging technical signal for some traders.

Continued demand from central banks, including an extension of the People's Bank of China's gold-buying streak, has also provided a floor for prices. A relatively stable U.S. Dollar Index, which was trading flat around 99.96, offered little directional pressure on the dollar-denominated commodity.