Gold jumps 9% in August as weaker dollar, easing Fed bets boost demand

Gold prices are set to extend their weekly winning run as expectations of a US Federal Reserve rate hike at its upcoming meeting ease following the latest batch of economic data, while a weaker US dollar has made the greenback-priced commodity more attractive to overseas buyers.

Spot gold prices have jumped another 1% to $4,397 an ounce in Friday's trade, putting the metal on track for a second straight weekly gain, with prices up around 0.9% so far this week. In the previous session, gold touched $4,450, its highest level in 10 weeks, following softer-than-expected US inflation data.

Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said, "Gold traded higher this week, gaining around 1%, with the rally extending to nearly 2.5% at its peak, supported by softer-than-expected US inflation. US CPI came in at 3.4% versus 3.5% expected, improving sentiment towards bullion and supporting expectations of a more accommodative Fed stance."

The latest rally has lifted gold's monthly gains to 9% so far in August, positioning for the strongest monthly performance since a 13% jump in January. Gold also hit a fresh all-time high of $5,602 at the start of the year.

Although the metal has rebounded amid recent whipsaw movements, it remains 21.5% below that record high.

Softer inflation, jobs data ease pressure on Fed

Back-to-back benign inflation readings, coupled with last week's softer-than-expected jobs report, have eased pressure on policymakers to tighten monetary policy at their meeting next month, reviving demand for the safe-haven metal.

The US dollar index slipped below 99.6 on Friday, moving closer to its two-month low of 95.53 recorded on August 7, as softer inflation data pointed to easing price pressures. A weaker dollar typically supports gold prices by making the dollar-denominated commodity cheaper for overseas buyers.

Despite the recent rally in crude oil prices and the lack of progress towards a deal to ease Middle East tensions, money markets are now pricing in around a 35% chance of a Fed rate hike in September, down from 55% a week earlier.

Earlier this week, Cleveland Fed President Beth Hammack said several rate increases may be needed to bring inflation back down to the central bank's 2% target, highlighting the continued uncertainty around the Fed's policy path.

Risks of a rebound in inflation remain, even as the broader conflict in the Middle East has cooled. The lack of progress on a deal to reopen the Strait of Hormuz continues to keep geopolitical risks elevated, limiting further upside in the yellow metal.

Meanwhile, US Treasury Secretary Scott Bessent has promised unprecedented "economic isolation" for Iran and a "one-two punch" that includes the continued blockade of the country's ports.

The consideration of economic sanctions came after US President Donald Trump earlier this week said the US Navy's blockade of the strait is preventing Iran from selling its oil on international markets, effectively putting further pressure on the Iranian economy.

Disclaimer: We advise investors to check with certified experts before making any investment decisions.