Gold heads for first monthly gain since February after Fed holds

Gold was heading for its first monthly advance since February, supported by this week’s decision by the US Federal Reserve to hold interest rates steady in the face of inflationary pressures from the Iran war.

Bullion was near $4 080 an ounce, on track for a July gain of nearly 2%. That was despite a retreat of as much as 0.8% on Friday, with the US dollar recovering ground against the yen following a sharp decline triggered by Japan’s apparent intervention in the foreign-exchange market during overnight trading.

A gauge of the dollar fell 0.9% on Thursday, making gold that’s priced in the US currency cheaper for most buyers, before regaining as much as 0.3% in the current session. The Bank of Japan kept its policy settings unchanged and authorities in Tokyo refrained from confirming any intervention, while top currency official Atsushi Mimura hinted at support from the US and other countries.

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Gold is down by more than a fifth since the US-Iran war began more than five months ago, with high energy prices stoking inflationary pressures and raising the likelihood that rates will stay higher for longer – a headwind for precious metals, which don’t pay interest. A wave of dip-buying has helped to keep the metal above the key level of $4 000 an ounce in recent weeks.

Looking ahead, bullion traders are continuing to seek clues to the Fed’s next policy steps. This week’s split decision — 9-3 in favor of preserving the current rate — revealed conviction among some policymakers that higher borrowing costs will eventually be needed to meet the central bank’s inflation target of 2%.

Fed Chairman Kevin Warsh insisted the latest decision wasn’t a sign of inertia at the US central bank, saying: “If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution, but I wouldn’t say it’s in isolation.”

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The messaging from Warsh “is that inflation is not alarming, outside of the energy price effect,” said Helen Amos, an analyst at BMO Capital Markets Ltd. The “market’s assessment of inflation might be past its peak,” she said, adding that the Jackson Hole Economic Policy Symposium in late August — where the Fed chair often delivers a major policy address — may be the next big catalyst for gold.

In the Middle East, the US and Iran exchanged strikes again this week, with Washington hitting “dozens” of targets in Iran on Wednesday in response to attacks on American military bases in the region. Meanwhile, Saudi Arabia has discussed the formation of a multinational alliance to protect shipping in and near the Red Sea.

Spot gold fell 0.5% to $4 082.04 an ounce at 1:10 p.m. in Singapore, having added 0.9% in each of the previous two sessions. Silver also shed 0.5% to $58.71 an ounce. Platinum and palladium declined.

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