Gold prices remain positive above the $4,300 area after weaker US (US) producer inflation data eased pressure on Federal Reserve (Fed) interest rate expectations.
At 9.30 am, gold prices were trading at $4,314, down 0.84% since they opened early Friday in Asian trading.
The market now turns its attention to US Retail Sales data for July, which will be published on Friday night. The data will provide additional clues on the strength of the US economy and the direction of the Fed's monetary policy.
US PPI Inflation Lowers
US Bureau of Labor Statistics data showed that the Producer Price Index (PPI) was unchanged in July from the previous month, lower than market expectations of a 0.2% increase.
Core PPI rose 0.2% on a monthly basis, below expectations of 0.3%. Annually, headline PPI rose 4.7%, while core PPI rose 4.2%.
A more moderate producer inflation reading could reduce pressure on the Fed to tighten monetary policy in the near term.
Fed Rate Expectations
The market is currently pricing in a less than 40% probability of a Fed rate hike in September.
Expectations of looser monetary policy could support gold as lower interest rates reduce the opportunity cost of holding gold which does not yield interest.
At the same time, the direction of the US Dollar remains a concern as a weaker dollar typically increases the attractiveness of gold to investors holding other currencies.
Strait of Hormuz Remains a Risk to Bullion
However, tensions in the Middle East remain a risk to gold.
Uncertainty over the reopening of the Strait of Hormuz could increase concerns about oil supply and trigger energy-based inflationary pressures.
Developments between the US and Iran are also expected to continue to be a focus of the market. Any escalation in tensions could potentially boost demand for gold as a safe-haven asset, but at the same time, rising oil prices could reshape expectations for Fed policy.
For now, gold remains supported by more moderate US inflation data and expectations of looser Fed rates, while tonight's US Retail Sales data will be a key catalyst to determine the next momentum for XAU/USD.
