Gold climbs to two-week high as Fed outlook, Middle East tensions support demand

Gold rose to a two-week high on Wednesday as investors assessed escalating tensions in the Middle East and looked ahead to next week's US Federal Reserve meeting for signals on the interest rate outlook.

Spot gold climbed 0.9% to $4,112.70 per ounce by 0705 GMT after touching its highest level since July 7 earlier in the session. US gold futures for August delivery gained 1% to $4,116.90.

The precious metal recovered after last week's sharp decline, with analysts pointing to bargain buying following the pullback.

"Buyers have been stepping in seeking a value play after the recent pullback, while hopes for diplomatic progress between the US and Iran are also assisting price moves," said Tim Waterer, chief market analyst at KCM Trade.

Investor sentiment remained focused on developments in the Middle East. US Secretary of State Marco Rubio said Washington remained willing to negotiate an end to the Iran crisis, but Tehran was not serious about talks.

Meanwhile, three oil tankers carrying Saudi crude to Asia reversed course in the Red Sea on Tuesday after threats from Yemen's Iran-aligned Houthis, raising fresh concerns over energy supplies.

Higher oil prices have fuelled inflation concerns, reinforcing expectations that US interest rates could remain elevated for longer.

According to a Reuters poll, the Federal Reserve is expected to keep its benchmark interest rate unchanged for the rest of 2026. However, a majority of economists now view the likelihood of a rate hike this year as high, reversing last month's consensus that such a move was unlikely.

Higher interest rates increase the opportunity cost of holding non-yielding assets such as gold.

Among other precious metals, spot silver rose 0.7% to $59.18 per ounce after reaching its highest level since July 10. Platinum gained 1.2% to $1,649.03, while palladium advanced 1.5% to $1,300.58.