XAU/USD rebounded from a low of $4,100 after US inflation data showed that price pressures were beginning to ease. The development raised hopes that the Federal Reserve (Fed) no longer needs to be too aggressive on interest rates.
At 9 am, gold was trading at $4,057, up 0.10% since it opened early Wednesday in Asian trading.
US Bureau of Labor Statistics data showed that the Consumer Price Index (CPI) for June rose 3.5% year-on-year, lower than 4.2% in May and below market expectations of 3.8%. On a monthly basis, the CPI fell 0.4%, compared to a 0.5% increase in the previous month.
Core inflation, which excludes food and energy prices, also showed signs of cooling, rising 2.6% from 2.9% in May.
After the report was published, investors began to reduce expectations that the Fed would raise interest rates at its meeting in late July, thus supporting gold prices.
However, inflation risks have not disappeared. Tensions in the Middle East continued to rise as the US military launched new attacks on Iranian targets near the Strait of Hormuz, which Iran denounced as a violation of international law.
If the conflict continues to push oil prices higher, inflationary pressures could rise again and force the Fed to keep interest rates at high levels for longer. This factor is expected to continue to be a key determinant of the direction of gold prices in the near term.
