Gold prices pulled back slightly on Wednesday, after touching a three-month high on Tuesday. Spot gold fell 1.4% to $4,592.97 per ounce, while U.S. gold futures dropped 0.9% to settle at $4,653.30. This occurred as investors awaited key U.S. inflation data and remarks from Federal Reserve Chairman Kevin Warsh later in the week. The dollar also strengthened by 0.3%, making gold more expensive for those holding other currencies.
The U.S. Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, rose 3.7% in the 12 months through July, slightly above economists' forecast of 3.6%. Following this data, traders increased the probability of a Fed rate hike next month to 38%, up from 36% before the data, while still largely pricing in a 62% chance of rates remaining unchanged, according to the CME FedWatch Tool. Gold, being a non-yielding asset, typically loses appeal in a high-interest-rate environment.
Analysts, such as Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, noted that gold's price action before the data was largely profit-taking and that the market was consolidating within Tuesday's range. He believes the uptrend in gold is reasserting itself and sees potential for gold to surpass $5,000 this year, possibly reaching new all-time highs by the second quarter of 2027. Wael Makarem, financial markets strategist lead at Exness, highlighted that softer-than-expected inflation combined with a dovish message from Warsh would be most supportive for gold by reinforcing expectations for lower real yields and reducing opportunity costs.
Attention is also focused on Chairman Kevin Warsh's speech at the Jackson Hole symposium. A dovish or balanced message from Warsh, coupled with softer inflation data, could further support gold by weakening the U.S. dollar and lowering Treasury yields. Conversely, a stronger-than-expected inflation reading or hawkish remarks could strengthen the dollar and increase the likelihood of a rate hike, posing a short-term risk to gold prices. Institutional demand for gold is also showing signs of returning, with gold-backed ETFs seeing $6.4 billion in inflows this week, suggesting a shift towards real asset allocation.
