Geopolitical Tensions and Fed Policy Uncertainty Prompt Gold to Retreat from 10-Week High

Gold prices dipped slightly on Friday (14th), pulling back from a 10-week high reached earlier in the week. Investors took profits after a strong rally, while uncertainty over Middle East geopolitical tensions and the U.S. Federal Reserve's (Fed) future policy direction contributed to the high-level volatility.

Spot gold fell 0.4% to $4,334.48 per ounce during Asian mid-session trading, while gold futures declined 0.7% to $4,390.30. Despite today's softness, gold is poised to post its second consecutive weekly gain.

The main support for gold prices comes from recent U.S. economic data. July's Producer Price Index (PPI) and Consumer Price Index (CPI) both showed inflation pressures were relatively contained, with PPI coming in below market expectations.

Australia and New Zealand Banking Group (ANZ) noted this strengthens the argument that the Fed may hold rates steady in September. Current market pricing suggests only about a one-third chance of a rate hike in September, with investors closely watching for comments from Fed Chair Kevin Warsh at the upcoming Jackson Hole global central banking symposium.

However, inflation outlooks remain closely tied to Middle East developments. Efforts between Washington and Tehran to end hostilities and reopen the Strait of Hormuz are stalled. With the U.S. threatening an indefinite maritime blockade on Iran and frequent tanker attacks in the region, the risk of energy supply disruptions persists.

Analysts suggest that if conflict escalates again and pushes oil prices higher, it could trigger a rebound in inflation, forcing the Fed to adopt a tighter monetary policy. Conversely, if sea lanes remain open, it could ease inflation risks that have persisted since the U.S.-Iran war erupted in late February.

On the technical front, gold recently broke above the key 100-day moving average but retreated below it due to profit-taking pressure. Nonetheless, gold remains supported above the psychological $4,000 level, thanks to renewed investor demand and strong buying from central banks—particularly China.