Gold prices rose on Thursday, rebounding from a six-month low, as investors covered their short positions, though concerns around higher inflation and US interest rates capped gains.
Spot gold rose 0.6 per cent to $4,097.01 per ounce at 0836 GMT after hitting its lowest point since November 21 earlier in the session.
US gold futures for August delivery were down 0.4 per cent at $4,118.
“Gold is clearly significantly oversold just now and it remains to be seen whether this is a recovery as such or simply short positions taking profit,” independent analyst Ross Norman said.
On the geopolitical front, the US and Iran traded attacks for a second straight day, with President Donald Trump vowing further strikes if Tehran does not immediately agree to a peace deal.
Spot gold has dropped more than 22 per cent since the US-Israeli war on Iran kicked off in late February, which was followed by a jump in oil prices.
Elevated crude oil prices can accelerate inflation and keep interest rates higher for longer. While gold is viewed as a hedge against inflation, higher interest rates tend to weigh on the metal.
Data on Wednesday showed US consumer inflation increased at its fastest pace in three years in May, boosted by surging prices for energy-related products.
The Federal Reserve is expected to hold rates steady in Kevin Warsh’s first meeting as Fed chair next week, with a majority of economists in a Reuters poll expecting interest rates to remain unchanged this year.
However, traders are currently pricing a 67 per cent chance of a US rate hike in December, according to the CME Group’s FedWatch tool.
“The market now firmly expects the Fed to raise interest rates before the end of the year,” Commerzbank analyst Carsten Fritsch said. “If next week’s meeting does not signal an upcoming increase in interest rates, the price of gold could start to recover.”
Investors now await the May producer price index reading due at 1230 GMT to gauge the Fed’s monetary policy stance.
Spot silver rose 1.3 per cent to $64.49 per ounce, platinum gained 0.8 per cent to $1,678.08 and palladium climbed 3 per cent to $1,249.58.