Gold's safe-haven surge has calmed down at a peak around $3,640 following profit-taking as investors are placing high hopes for a Federal Reserve (Fed) interest rate cut at the next monetary meeting.
At 9.30 am, gold prices were at $3,641, up 0.20% since it opened in early trading on Friday in the Asian session.
The US dollar's modest recovery and the support from gold's profit-taking continue to weigh on the market as investors assess the US inflation report, which is the main gauge of the Fed's FOMC meeting next week.
However, US data showed a sharp decline in inflation, namely the Producer Price Index (PPI) and weakness in the labor market. The report strengthens the case that the Fed will cut interest rates at the September policy meeting.
Most market participants are predicting a 25 basis point cut at the September, October and December meetings. Lower interest rates will support gold prices higher.
Additionally, ongoing geopolitical risks in Europe and the Middle East could boost the price of gold, a traditional safe-haven asset.
Geopolitical tensions in Europe increased after Poland shot down a Russian drone that crossed its territory in Russia's latest attack on Ukraine. In addition, Israel on Tuesday launched an attack on Doha, Qatar targeting senior Hamas leadership.
Market participants are currently awaiting data from the University of Michigan's Consumer Sentiment Index, which is due out later on Friday.
