Gold held a two-day gain on Friday, with bullion trading near $4,100 an ounce in early Asian trading, as a sharp decline in the US dollar offered fresh support. The rally was triggered by Japan’s intervention to strengthen the yen, which weakened the dollar and made gold more affordable for global buyers. The move follows the US Federal Reserve’s decision to maintain interest rates at their current level, despite ongoing inflation concerns linked to the Middle East conflict.
The dollar dropped nearly 1% against a basket of major currencies on Thursday, largely due to Japan’s efforts to shore up the yen ahead of its upcoming policy announcement. This decline lowered the cost of gold for buyers using currencies like the euro and the Chinese yuan. A weaker dollar typically favors assets like gold and silver, which do not generate interest and are sensitive to shifts in currency value.
Despite losing more than 20% since the start of the US-Iran war five months ago, gold is on track for its first monthly gain since February, up over 2% so far this month. Dip-buying activity has helped the metal stay above the $4,000 level in recent weeks. Rising energy prices and geopolitical tensions continue to drive inflation worries, which could keep interest rates elevated and pressure gold prices in the long term.
Federal Reserve Chair Kevin Warsh emphasized that the decision to keep rates unchanged was not a sign of hesitation but rather a measured response to current economic conditions. He stated that further rate hikes could be necessary if inflation remains high over the next few months. Market analysts are now looking to the Jackson Hole Economic Policy Symposium in late August for further clarity on the Fed’s stance, which could influence gold’s direction.
Tensions in the Middle East remain a key factor in global markets, with the US and Iran exchanging missile strikes this week. Washington responded to recent attacks on American bases in the region by launching strikes on dozens of Iranian targets. In a separate development, Saudi Arabia has been discussing the formation of a multinational alliance to secure shipping lanes in and around the Red Sea. Spot gold rose slightly to $4,109.23 an ounce, while silver gained 0.3%. The dollar index showed a slight rebound but remained under pressure from Japan’s earlier intervention.
Analysts like Helen Amos at BMO Capital Markets have noted that the Fed’s messaging suggests inflation is not an immediate crisis beyond energy-related impacts. However, uncertainty remains, with the central bank signaling a possible need for rate increases in the future. The market’s view of inflation may have already peaked, but the situation will stay under close watch until key policy events, such as the Jackson Hole meeting, offer more clarity.
Gold’s performance was also influenced by comments from US Treasury Secretary Scott Bessent, who highlighted the yen’s undervaluation and criticized what he described as excessive currency volatility. His remarks align with broader concerns over market stability and the potential for further central bank interventions. The ongoing interplay between currency markets, geopolitical risks, and monetary policy will likely determine gold’s trajectory in the coming weeks.