Gold Prices Climb 1% on Cooling US Inflation, But Middle East Tensions Weigh

Gold prices saw a notable uptick on Wednesday after the highly anticipated US July consumer inflation report matched expectations. The data prompted market participants to scale back their expectations for an aggressive Federal Reserve interest rate hike in September. However, broader market gains were kept in check by ongoing geopolitical uncertainties surrounding the Strait of Hormuz. Spot gold climbed 1.1% to trade at $4,416.15/oz, while gold futures advanced 0.8% to $4,476.35/oz.

Cooling Inflation Boosts Rate Pause Hopes
Precious metal traders were squarely focused on the July Consumer Price Index (CPI) report for fresh cues on the Fed’s monetary policy outlook. The data followed a weaker-than-expected July jobs report, which had already initiated a recalibration of rate hike odds. According to the US Bureau of Labor Statistics, the inflation data matched market expectations across the board:

Headline CPI: Ticked up 0.1% month-over-month (after falling 0.4% in June) and cooled to 3.4% year-over-year from 3.5%.

Core CPI (excluding food and energy): Increased 0.2% month-over-month and decelerated to 2.5% year-over-year from 2.6%.

For the Federal Open Market Committee (FOMC), these in-line readings provide breathing room to potentially hold interest rates steady. Following the CPI release, the CME FedWatch tool showed the probability of the FOMC holding rates steady in September ticking up to 60%, compared to 54% previously. Higher interest rates typically weigh on non-yielding assets like bullion, making a potential rate pause bullish for gold.

Strait of Hormuz Uncertainty Caps Gains
While inflation data provided a tailwind for gold, geopolitical tensions kept markets cautious. Oil prices fluctuated, with the global benchmark Brent crude briefly touching $90 a barrel amid conflicting messages regarding the Strait of Hormuz. Efforts to reach a peace deal to reopen the critical waterway appear stalled, with both the US and Iran asserting control. Iranian state media reiterated demands that the US must cease hostilities and release frozen assets before the strait can be reopened. This caution was further compounded by fresh attacks from Houthi rebels in the Bab el-Mandeb Strait, which resulted in casualties among commercial crew members and rescuers.

China Continues to Hoard Gold
Providing an underlying floor of support for precious metals, institutional demand remains robust. The People’s Bank of China (PBOC) increased its gold reserves for a staggering 21st consecutive month in July. The central bank added approximately 640,000 troy ounces, bringing its total reserves to 76.08 million ounces. From a technical perspective, IG senior market analyst Tony Sycamore noted that gold currently faces downtrend resistance around $4,460, with the 200-day moving average near $4,495 reinforcing that ceiling. Bullion will need a sustained breakout above these levels to pave the way for a stronger recovery toward the $5,000 mark.