Download App

[Hawky Fed and Middle East Situation Limits Dollar Decline, Gold Rebounds but Bullish Confidence Remains Weak] 1. Gold prices fluctuated higher in Asian trading on Friday, rising as much as 0.63% to $4369.38 per ounce, but remained below the weekly high reached the previous day. Despite attracting some buying for the second consecutive trading day, bullish sentiment was clearly weak. Recent declines in oil prices eased immediate concerns about runaway inflation, and further declines in US Treasury yields from multi-year highs put dollar bulls on the defensive, providing support for gold prices. However, the Fed's hawkish outlook provided a tailwind for the dollar, preventing traders from making aggressive bullish bets on non-interest-bearing gold. 2. On Wednesday, the Fed unanimously voted to raise interest rates for the first time since 2023, and the dot plot showed officials expect one more rate hike this year. Chairman Warsh emphasized the importance of stable consumer prices for US economic growth after the meeting, noting that inflation has been persistently high. Escalating tensions in the Middle East continue to support oil prices, exacerbating concerns about energy-driven inflation and reinforcing the prospect of further Fed tightening. 3. UOB analysts pointed out that the Fed's return to a rate hike cycle is reshaping the dollar's outlook. With the Federal Reserve expected to raise interest rates twice more, the narrowing of the US interest rate differential relative to G10 peers, which previously suppressed the dollar, may reverse and support the dollar in the future. The bank believes its previous cautious stance on the dollar is increasingly being challenged, and there are upside risks to the dollar's forecasts against G10 and Asian currencies. 4. According to the CME FedWatch tool, traders see a 54% probability of another rate hike at the October meeting and an approximately 88% probability of action in December. This, along with geopolitical uncertainty, provides a tailwind for the safe-haven dollar, thus limiting gold prices. In the latest developments, Iran's Islamic Revolutionary Guard Corps stated it struck a Togolese-flagged oil tanker attempting to illegally pass through the Strait of Hormuz. Furthermore, Trump indicated he is close to making a major decision on whether to resume large-scale attacks against Iran. 5. Therefore, it is prudent to cautiously await strong follow-through buying before betting on a further recovery in precious metals from the six-week low hit on Wednesday. Traders are currently anticipating secondary macroeconomic data such as US industrial production and capacity utilization rates to be released on Friday, as well as speeches by influential FOMC members, which will boost the dollar and provide impetus for gold prices during the North American session. Meanwhile, the market will also be watching the further developments of the Middle East crisis.