Gold Prices Steady as Weaker Dollar Counters Fed Rate Hike Fears

Gold prices held steady on Tuesday, with a weaker U.S. dollar helping to offset pressure from investor expectations of another Federal Reserve interest rate hike ahead of key U.S. inflation data.

By 7:57 AM ET (11:57 GMT), spot gold was down a marginal 0.1%, while gold futures fell 0.6%, according to data from Investing.com. The precious metal has been consolidating within a relatively tight trading range after rebounding from lows seen in July.

Dollar Weakness Provides Support

Gold found a floor after recovering from losses in the previous session, primarily due to a pullback in the U.S. dollar. The dollar's weakness was largely attributed to a significant rally in the Japanese yen, fueled by growing market bets that the Bank of Japan will soon move to raise its interest rates.

A softer greenback typically benefits gold, as it makes the dollar-denominated commodity more affordable for international buyers and investors using other currencies.

Fed Policy and Inflation Data in Focus

Despite the currency tailwind, gold's gains were capped by persistent concerns over U.S. monetary policy. Following a strong non-farm payrolls report last week, markets are pricing in a roughly 60% probability of a Federal Reserve rate hike at its next meeting, the source material indicated.

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Investors are now awaiting this week's U.S. consumer price index (CPI) report, which will be a critical factor in shaping the Fed's upcoming decision. An unexpectedly high inflation reading could cement expectations for further policy tightening, which is typically a headwind for non-yielding assets like gold.

Tony Sycamore, a senior market analyst at IG, noted that the combination of strong jobs data and rising energy prices is expected to push U.S. Treasury yields higher, creating further pressure on gold, as cited by Investing.com.

Broader Market Factors

Underlying support for the precious metal continues to come from robust central bank buying. The People's Bank of China reportedly accelerated its gold purchases in August to the highest monthly level of the year, signaling sustained demand from official sources.

However, new inflationary risks are emerging from the energy sector. Rising geopolitical tensions have pushed Brent crude oil prices toward $100 a barrel. While gold is often considered an inflation hedge, persistent energy-driven price pressures could force the Fed to maintain a more hawkish stance, weighing on the metal's appeal.