Gold prices recovered on Thursday after falling to a six month low, as investors covered short positions and looked for opportunities following the recent sell off. However, concerns over rising inflation and the possibility of higher US interest rates continued to limit gains.
Spot gold climbed 0.6% to $4,097.01 per ounce after earlier touching its lowest level since 21 November. US gold futures for August delivery traded lower, falling 0.4% to $4,118.
Analysts said the rebound may be driven more by short covering rather than a major change in market direction.
“Gold is clearly significantly oversold just now and it remains to be seen whether this is a recovery as such or simply short positions taking profit,” said independent analyst Ross Norman.
Geopolitical tensions remain a key factor for markets, with the US and Iran exchanging attacks for a second consecutive day. The ongoing conflict has added uncertainty to financial markets and energy prices.
Gold has fallen more than 22% since the US and Israeli conflict with Iran began in late February, which triggered a sharp rise in oil prices.
Higher oil prices can increase inflation pressures and potentially keep interest rates elevated for longer. While gold is traditionally viewed as a hedge against inflation, higher interest rates often reduce its appeal because the metal does not generate income.
Recent US inflation data showed consumer prices rose at their fastest pace in three years during May, driven largely by higher energy costs.
The Federal Reserve is expected to keep interest rates unchanged at its upcoming meeting, with economists expecting rates to remain steady for now. However, markets are pricing in a 67% chance of a US rate increase by December.
Commerzbank analyst Carsten Fritsch said that if the Federal Reserve does not signal further rate increases, gold could regain momentum.
“The market now firmly expects the Fed to raise interest rates before the end of the year. If next week’s meeting does not signal an upcoming increase in interest rates, the price of gold could start to recover,” Fritsch said.
Other precious metals also moved higher, with silver rising 1.3% to $64.49 per ounce, platinum gaining 0.8% to $1,678.08 and palladium climbing 3% to $1,249.58.
Despite the recent correction, gold remains supported by ongoing geopolitical uncertainty, central bank demand and its role as a long term store of value.
