- Gold prices traded flat at $4,600.19/oz on Friday as investors awaited remarks from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium for clues on interest rates.
- Gold hit a three-month high near $4,700/oz earlier this week due to concerns over U.S. fiscal policy and Treasury bond support.
- Warsh's first major address as Fed chair is scheduled for 10 a.m. ET on Friday, and is being closely watched for signals on inflation and interest rates.
- Markets are pricing a 34% chance of a rate hike in September and a 74% probability of a hike by December.
- Gold is set for a marginal weekly fall after three consecutive weeks of gains.
- Recent data have complicated the outlook for monetary easing, with the personal consumption expenditures price index rising 3.7% in the year through July.
- Higher interest rates tend to weigh on gold as the non-yielding asset becomes less attractive compared to interest-bearing investments.
- Gold has recently benefited from lower yields and a softer dollar, making it cheaper for buyers holding other currencies.
- Gold has gained more than 13% in August despite Friday’s pullback.
Gold prices traded flat at $4,600.19 an ounce as investors awaited Federal Reserve Chair Kevin Warsh's speech at Jackson Hole, scheduled for 10 a.m. ET (1400 GMT). This address is crucial for insights on inflation and interest rates, especially after the personal consumption expenditures price index rose 3.7% year-over-year through July, complicating the outlook for monetary easing.1347
Despite hitting a three-month high near $4,700/oz earlier this week, gold is set for a marginal weekly decline after three weeks of gains. The market is currently pricing a 34% chance of a rate hike in September and a 74% probability of a hike by December, according to recent data.25
Higher interest rates typically diminish gold's appeal as a non-yielding asset compared to interest-bearing investments. However, gold has gained over 13% in August, benefiting from lower yields and a softer dollar, which reduce the opportunity cost of holding the metal and make it cheaper for buyers using other currencies. The cautious positioning of investors ahead of Warsh's speech reflects the uncertainty surrounding future monetary policy.8
Overall, while gold faces potential headwinds from rising interest rates, the broader economic backdrop remains supportive for bullion, as evidenced by its recent performance amidst fiscal policy concerns and Treasury actions to support longer-dated bonds.
“Gold hit a three-month high near $4,700/oz earlier this week on fiscal policy concerns, but has since pulled back. Markets now price a 34% chance of a rate hike in September and 74% by December, after PCE inflation rose 3.7% year-over-year in July.”
