By: Economy Middle East

Gold prices advanced on Wednesday, remaining close to the $4,400-an-ounce mark as uncertainty surrounding a potential U.S.-Iran agreement to reopen the Strait of Hormuz lifted oil prices. Investors also awaited U.S. inflation data for clues on the Federal Reserve’s monetary policy path.

As of 5:32 GMT, spot gold was up 0.57 percent at $4,393.22 an ounce, while gold futures rose 0.28 percent to $4,453.72.

In the UAE, gold rates edged higher, with 24-carat gold rising AED1.5 to AED530.25 and 22-carat gold gaining AED1.25 to AED491.

In addition, 21-carat gold rose AED1.5 to AED471 and 18-carat gold ticked up AED1 to AED403.5.

Meanwhile, 14-carat gold rose AED0.75 to AED314.75.

Gold prices hold near two-month high

Gold prices remained supported near a two-month high as investors weighed mixed signals over the prospects of a deal to reopen the Strait of Hormuz. Pakistan’s defense minister said Washington and Tehran were nearing an agreement, while reports of advanced talks between Oman and Iran indicated that diplomatic efforts were continuing.

Iran, however, maintained that the waterway would stay closed until the U.S. meets its demands, including lifting the blockade on Iranian ports and compensating Tehran for damage caused by U.S. military strikes.

The conflicting developments have kept energy markets volatile. The U.S. and Yemen’s Iran-aligned Houthis reported separate attacks on shipping in the Strait of Hormuz and Bab el-Mandeb, while a U.S. Navy helicopter fired missiles at a Panama-flagged cargo ship attempting to cross the Gulf of Oman.

Elsewhere, a drone attack targeted a refinery in Libya, adding to concerns over disruptions to global energy supplies.

For gold prices, the impact of higher energy prices on inflation remains a key focus. A sustained rise in energy costs could prompt the Federal Reserve to keep interest rates higher for longer, potentially weighing on non-yielding bullion by increasing the opportunity cost of holding the precious metal.

“Gold had fallen sharply from its January record above $5,500, while second-quarter losses were the largest since 2013. Yet the inability of sellers to force a sustained break below $4,000 increasingly suggested that underlying demand remained strong enough to absorb liquidation from more rate-sensitive investors,” said Ole Hansen, Head of Commodity Strategy, Saxo Bank.

“That resilience last week drove a 7 percent rebound in gold, its strongest weekly gain since January, while silver climbed back above $65. Friday’s weak U.S. employment report provided the latest catalyst as it reduced expectations for another near-term Federal Reserve rate hike and helped push the dollar lower,” he added.

Investors eye key CPI report

Investors are now turning their attention to Wednesday’s U.S. consumer price index (CPI) report, followed by producer price data on Thursday. A softer-than-expected reading could ease pressure on the Federal Reserve to keep policy tight, while stronger inflation could revive expectations for higher interest rates.

Markets have remained cautious ahead of the CPI release, with traders pricing roughly even odds of a 25-basis-point rate hike at the Fed’s September meeting.

“Despite the improving backdrop, several risks argue against becoming outright bullish just yet. The most obvious is inflation. The July Fed meeting reduced immediate tightening concerns, but three policymakers still wanted higher rates. A renewed acceleration in inflation could quickly rebuild expectations for another hike, pushing Treasury yields and the dollar higher and once again challenging investment demand for gold from rate-sensitive investors,” Hansen added.

Meanwhile, the People’s Bank of China increased its gold holdings for a 21st consecutive month in July, adding around 640,000 troy ounces to bring its reserves to 76.08 million ounces. Continued inflows into Chinese gold-backed ETFs have also supported gold prices, highlighting stronger institutional demand in recent weeks.

Other precious metals

As gold prices rose, the broader precious metals market edged higher on Wednesday. Spot silver gained 0.55 percent to $65.06, platinum increased by 0.54 percent to $1,752.35, and palladium rose 0.15 percent to $1,372.15.