Gold prices edged higher during Wednesday's Asian session as investors awaited the United States Federal Reserve's latest interest rate decision, with renewed Middle East tensions supporting safe-haven demand while rising oil prices reinforced expectations of tighter monetary policy.
By 4:30 pm AEST (6:30 am GMT), spot gold was up 0.3% at US$4,040.63 per ounce.
The precious metal found support from escalating geopolitical risks after fighting resumed in the Middle East, although gains were capped by a sharp rebound in oil prices, which reignited inflation concerns and strengthened the case for higher U.S. interest rates.
Oil prices climbed around 4% after U.S. Central Command (CENTCOM) carried out precision strikes in Iraq targeting Iran-backed groups accused of planning attacks on U.S. forces and Saudi energy infrastructure.
The military action followed the Islamic Revolutionary Guard Corps launching multiple ballistic missiles at U.S. military positions in the Middle East, further heightening geopolitical uncertainty.
Higher oil prices have raised concerns that inflationary pressures could persist, reducing the appeal of non-yielding assets such as gold if the Federal Reserve maintains a hawkish stance.
According to the CME Group FedWatch Tool, markets are pricing in a 29.4% probability of a 25-basis-point interest rate increase at the July meeting, up from 25% a week earlier.
Traders also see a 76.7% probability of another rate hike at the Federal Reserve's September meeting.
Beyond the policy announcement, investors will closely monitor the voting split among policymakers and comments from Federal Reserve Chair Kevin Warsh for clues on the central bank's outlook and the likelihood of further tightening later this year.
