Bullion rose back to near $4,100 at the end of Wednesday's trading after US inflation data showed price pressures continued to ease. The development reinforced expectations that the Federal Reserve (Fed) will keep interest rates on hold at its July meeting.
At 9 am, gold prices were trading at $4,047, down 0.32% since it opened early Thursday in Asian trading.
US Producer Price Index (PPI) data for June rose 5.5% year-on-year, lower than 6.0% in May and below market expectations of 6.2%. On a monthly basis, PPI fell 0.3%, signaling that inflationary pressures at the producer level are easing.
Following the data, market expectations for a Fed interest rate hike in July continued to decline. The probability of a rate hike is now around 10.2%, compared to 16.6% before the PPI data was announced. Earlier, US CPI data also showed lower-than-expected consumer inflation.
However, geopolitical tensions remain a major factor influencing the market.
The United States reportedly launched new attacks on Iran, while President Donald Trump warned that more aggressive action would be taken if Tehran refused to return to the negotiating table.
The conflict around the Strait of Hormuz has also pushed up crude oil prices. If energy prices continue to rise, inflationary pressures could return to the fore and force the Fed to keep interest rates high for longer, thus limiting the potential for gold prices to rise in the near term.
