Gold prices stagnate amid dollar strength and inflation worries

Gold (XAU/USD) faced limited movement on Thursday as it grapples with the influence of a resurgent dollar and climbing Treasury yields. These factors are being driven by mounting concerns about sustained inflation pressures and the likelihood of the Federal Reserve maintaining its hawkish stance.

Additionally, economic data revealed the resilience of the U.S. economy, further dampening safe-haven demand for the precious metal and reinforcing expectations that the country would avoid a recession in the current year.

Nevertheless, the gold market remains fixated on U.S. interest rates, especially with several Federal Reserve speakers scheduled before the upcoming interest rate decision later in the month.

Spot gold saw a modest 0.1% uptick, reaching $1,923.32 per ounce, before retracing slightly to $1,917.79.

Wednesday’s data indicated that U.S. service sector activity surpassed expectations in August. Yet, it was the increase in service sector prices that triggered market concerns, as it is likely to contribute to sustained inflationary readings in the coming months.

This development, combined with a recent surge in oil prices, renewed worries about persistent U.S. inflation, prompting a hawkish response from the Federal Reserve.

While the consensus anticipates the Federal Reserve to hold rates steady in September, the central bank is expected to maintain higher interest rates for an extended period.

The outlook for gold appears cloudy in light of the potential for higher rates, which raise the opportunity cost of holding gold. A stronger dollar also diminishes the per-ounce value of the precious metal.

This persistent challenge has weighed on gold throughout the past year, casting uncertainty over its future prospects.