Gold experienced a dramatic tug-of-war this week, initially surging by as much as 3.4% to an intraday high of $4,173.90 per ounce on Thursday. This rally was fueled by cooling US inflation data and a softening dollar. However, this powerful rally quickly faded during Friday's Asian trading session.
The US Federal Reserve held interest rates steady at its policy meeting, with a 9-3 vote where three Regional Bank Presidents dissented in favor of a 25-basis-point rate hike. Fed Chair Kevin Warsh emphasized tackling inflation as a priority but offered little clarity on future policy moves. The Core Personal Consumption Expenditures (PCE) Price Index for June, the Fed's preferred inflation gauge, ticked lower from 3.4% to 3.3% year-over-year, and the headline PCE slowed from 4.1% to 3.7% year-over-year, signaling easing inflationary pressures.
Money markets initially trimmed hawkish bets for September, with the odds of a rate hike falling to a slim 30%, while the chances of a hold rose to 70% according to Prime Terminal data. However, other reports indicated that markets were pricing in a 63% chance of a rate hike in September, or between 57% and 64%. Escalating US-Iran tensions and concerns about energy-driven inflation kept Fed rate-hike bets on the table, supporting the US dollar.
A key variable influencing precious metals was sharp swings in currency markets, specifically suspected Japanese and US currency intervention. The Japanese government reportedly intervened by buying yen and selling dollars, and the US Federal Reserve System executed a "rate check," interpreted as a precursor to intervention. This caused the yen to briefly strengthen by over 2% against the dollar, reaching approximately ¥157.8. Despite the dollar index falling roughly 0.9% on Thursday due to this intervention, its swift recovery on Friday suggested the impact might be fleeting. By Friday morning, the exchange rate was around ¥159.54, and the dollar index rose 0.26%, making dollar-denominated gold more expensive.
Spot gold fell 0.39% to $4,087.29 per ounce during Friday's session, slipping below the psychological $4,100 threshold, but was still poised for its first monthly gain since February, rising roughly 2.1% in July. Gold had found support around the $4,000 level, attracting buyers on dips according to Tim Waterer, chief market analyst at KCM Trade.
