Gold prices fell slightly on Tuesday morning but remained near their highest level in over three months, supported by a weaker US dollar and the US Treasury's bond buyback plans. Spot gold dropped 0.1% to $4,647.05 per ounce, still close to its mid-May high, while gold futures were marginally up at $4,694.50. The yellow metal has gained over 15% so far this month, with UOB forecasting its strongest monthly gain since September 1999. A softer dollar makes gold more attractive to foreign currency holders, and lower Treasury yields reduce the opportunity cost of holding bullion. The dollar index has lost 0.8% this month, and despite elevated Treasury yields for most of August, the government's bond buyback plans have kept them in check, down 3 basis points this month.
Investors are now focusing on upcoming US inflation data, particularly the Personal Consumption Expenditures (PCE) report due on Wednesday, and Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole Symposium later this week. A hawkish speech from Warsh could halt the ongoing gold rally, while a dovish surprise would be "ultra-bullish" for gold, as it would lead to further pricing out of Fed rate hikes and renewed concerns about Fed independence and US debt sustainability, according to Citi. TD Securities also noted that US dollar debasement fears should support gold, especially as the Fed has not clearly signaled a readiness to fight higher inflation.
Despite the recent retreat from its peak, analysts like Tony Sycamore from IG expect dips in gold to be well-supported, with buyers looking for the metal to reach the next upside resistance at $4,900/$5,000. However, TD Securities cautioned that it is too early for gold to surge to their $5,350 per ounce target, given the risk that short-term rates may eventually rise as crude oil prices increase. The strength of the dollar carry trade, which favors bullion over energy, is also a significant factor, with WTI crude oil trading lower at $84.73 per barrel, while Brent crude was at $91.78. Gold's current bid is seen as structural rather than cyclical, driven by the cost of holding dollars and yield differentials.
