Gold Drifts Higher Above $4,050 As US PPI Unexpectedly Fell In June

Gold price (XAU/USD) edges higher to around $4,060 during the early Asian session on Thursday. The precious metal rebounds as softer US inflation has fueled hopes that the US Federal Reserve (Fed) will hold rates steady at the upcoming July policy meeting.

Producer inflation in the United States, as measured by the change in the Producer Price Index (PPI), declined to 5.5% YoY in June from 6.0% in May (revised from 6.5%), the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading came in softer than the market expectation of 6.2%. On a monthly basis, the PPI declined by 0.3%, compared to the 0.6% increase seen in May (revised from 1.1%) and improved compared with the estimate for no change. 

Traders see about a 10.2% probability of a rate hike at the Fed's July meeting, versus 16.6% before the data, according to the CME FedWatch Tool. Earlier on Tuesday, U.S. consumer inflation also slowed more than expected in June. 

"Gold has pared losses from earlier this morning as PPI came in lower than expected and eased some of those concerns about the Fed having multiple interest rate hikes this year," said Phillip Streible, chief market strategist at Blue Line Futures.

On the other hand, escalating US-Iran hostilities and airstrikes around the Strait of Hormuz have pushed crude oil prices up and could prompt central banks to hold rates at elevated levels for longer, weighing on gold's appeal as a non-yielding asset.

The BBC reported that the US had launched fresh strikes against Iran on Wednesday evening as US President Donald Trump warned Tehran it "better behave”. Iran's top negotiator, Mohammad Bagher Ghalibaf, said that Tehran had "no reason" to abide by the deal if it did benefit from it. On Tuesday, Trump had threatened to attack bridges and power plants should Iran not return to talks next week.