Gold holds near $4 350 as US inflation lifts odds of a Fed hike

Moneyweb reports that gold steadied near $4 350 an ounce after three consecutive weekly declines, as hotter than expected United States inflation data raised the odds of a Federal Reserve rate increase later this week.

Underlying US inflation picked up in August. The core consumer price index, which strips out food and energy, rose 0,3% from the month before. Gold finished that session higher but still ended the week down 1,8%.

Traders now price an almost 90% chance of the first US rate increase in three years. That matters well beyond New York, because higher US borrowing costs typically weigh on gold, which pays no interest, and lift the dollar against currencies such as the rand.

What the Fed does reaches Pretoria

Gold is not a niche asset in South Africa. It is one of the country’s largest export earners and a direct contributor to mining employment, company earnings and tax receipts. When the dollar price of bullion falls, and the rand weakens at the same time, the two effects partly offset each other for local producers. When the dollar price falls and the rand holds firm, the squeeze is more direct.

The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0,1% higher. Spot gold traded flat at $4 348,87 an ounce in Singapore. Silver slipped 0,5% to $64,19, while platinum and palladium barely moved.

Oil added its own pressure. Brent crude climbed toward $107 a barrel after rallying almost 9% the previous week, as conflict in the Middle East continued to escalate. A meeting planned for Monday between Iran and several Gulf states, aimed at opening a temporary shipping lane through the Strait of Hormuz, was postponed, leaving efforts to move more exports through the waterway unresolved.

Higher energy costs feed into inflation everywhere, including here. South Africa imports most of its refined fuel, so a sustained Brent price above $100 shows up in the petrol price, in transport costs and eventually in the food on a supermarket shelf.

The case for gold surviving a hike

Not everyone reads a rate increase as the end of the gold run. Yuxuan Tang, Asia head of rates and foreign exchange strategy at JPMorgan Private Bank, said the market has largely priced in the risk of a hike, but bullion still faces further headwinds if it materialises.

“By contrast, a hold, hawkish or dovish, would likely push real yields lower and reignite concerns about policy credibility and currency debasement, which should be supportive for gold,” Tang said.

She expects bullion to remain well supported over the medium term even if the Fed moves. Tightening “would add pressure to parts of the economy that are already struggling with elevated energy costs and risk a widened K-shaped growth trajectory”, she said, raising the risk of recession, which tends to be positive for gold.

Gold has mostly traded around $4 400 an ounce since bouncing off a floor near $4 000 in early August, as traders repeatedly recalibrated their expectations of US policy. Many investors are still betting the metal grinds higher as it rediscovers its role as a portfolio hedge.

The rand is where this lands

For South African readers the transmission is straightforward. A stronger dollar usually means a weaker rand, which raises the price of imported fuel, machinery, medicine and food. It also raises the rand value of every dollar of gold and platinum exported, which is some consolation for producers and for the Treasury.

The near-term question is which effect dominates. If the Fed hikes and the dollar firms, local miners earn more rands per ounce even as the dollar price sags. If the Fed holds and the dollar softens, gold gets its tailwind back and the rand gets relief on imports.

President Donald Trump reiterated his calls for lower rates on Sunday, according to Moneyweb’s report. Any increase risks drawing his objection, though the Fed sets policy independently.

The decision lands this week. South African exporters, the Treasury and anyone filling a tank will feel it either way.