Gold held a two-day gain, supported by a sharp decline in the US dollar after Japan intervened to bolster the yen.
Bullion was near $4,100 an ounce in early trading Friday, on track for its first monthly gain since February. The metal has also been broadly supported this week by the US Federal Reserve’s decision to leave interest rates unchanged, despite inflationary pressures from the war in the Middle East. Higher borrowing costs are a headwind for precious metals, which don’t pay interest.
The dollar’s near-1% decline against a basket of currencies on Thursday, a result largely of the Bank of Japan’s intervention to prop up the yen ahead of a policy decision due Friday, made gold that’s priced in the US currency cheaper for most buyers. Commenting on the yen, US Treasury Secretary Scott Bessent said in an interview with Fox Business that the Japanese currency is “very undervalued” and that he believes “excess volatility” is not healthy.
Gold is down by more than a fifth since the US-Iran war began more than five months ago, with high energy prices stoking inflationary pressures and raising the likelihood that rates will stay higher for longer. A wave of dip-buying, however, has helped to keep the metal above the key level of $4,000 an ounce in recent weeks, and it remains on track for a monthly gain of more than 2%.
The Fed’s decision Wednesday to keep interest rates steady offered further support, particularly as some traders had earlier bet on a hike. But the 9-3 vote in favor of leaving borrowing costs unchanged also revealed conviction among some policymakers that a rise will eventually be needed to meet the central bank’s inflation target of 2%.
Fed Chairman Kevin Warsh insisted the latest decision wasn’t a sign of inertia at the US central bank, saying: “If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution, but I wouldn’t say it’s in isolation.”
The messaging from Warsh “is that inflation is not alarming, outside of the energy price effect,” said Helen Amos, an analyst at BMO Capital Markets Ltd. The “market’s assessment of inflation might be past its peak,” she said, adding that the Jackson Hole Economic Policy Symposium in late August — where the Fed chair often delivers a major policy address — may be the next big catalyst for gold.
In the Middle East, the US and Iran exchanged strikes again this week, with Washington hitting “dozens” of targets in Iran on Wednesday in response to attacks on American military bases in the region. Meanwhile, Saudi Arabia has discussed the formation of a multinational alliance to protect shipping in and near the Red Sea.
Spot gold edged up 0.1% to $4,109.23 an ounce at 7:45 a.m. in Singapore. Silver rose 0.3% to $59.17 an ounce. Platinum and palladium were little changed. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1% after dropping 0.9% in the previous session.
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