Gold Holds Near $4,400 as Middle East Tensions, Fed Hike Odds Tug Prices in Opposite Directions

Gold held little changed near $4,400 an ounce as Middle East tensions stemming from the U.S.-Iran conflict offset expectations for a Federal Reserve interest-rate increase.

According to Bloomberg, spot gold rose 0.1% to $4,409.68 an ounce as of 7:18 a.m. in Singapore on September 7. Bullion has hovered around $4,400 after falling 1.5% over the previous two sessions.

Renewed friction between the U.S. and Iran over the Strait of Hormuz has lifted oil prices, clouding the rate outlook. Concerns are growing that higher energy costs could add to inflationary pressure, and markets are pricing in about a 60% chance that the Fed will raise its benchmark rate next week. Gold, which pays no interest, typically becomes less attractive when rates rise.

A weaker dollar is helping support gold. The U.S. currency fell to its lowest level against the yen since February. When the dollar weakens, dollar-denominated gold becomes relatively cheaper for investors using other currencies, which can support demand.

Gold has traded in a narrow range around $4,400 since rebounding from about $4,000 an ounce in July. In the near term, the U.S. consumer price index report due this week is a key variable for the metal's next move.

Some investors are also increasingly betting on further gains in gold over the medium to long term. Central-bank purchases are expanding again, and the so-called debasement trade, aimed at guarding against currency erosion, is re-emerging. Some global asset managers have recently increased their gold holdings.