Gold prices experienced a slight dip on Wednesday, August 26, after hitting a more than three-month high in the previous session. Spot gold eased 0.3 percent to $4,642.74 per ounce by 0410 GMT, while US gold futures rose 0.1 percent to $4,700.70. This slight retreat comes as investors look ahead to the US Personal Consumption Expenditures (PCE) price index for July, the Federal Reserve's preferred inflation gauge, and a speech by Fed chairman Kevin Warsh at the Jackson Hole symposium on Friday. A softer-than-expected inflation report combined with dovish remarks from Warsh could reinforce expectations for lower real yields, reducing the opportunity cost of holding non-yielding gold.
The recent surge in gold, which saw prices climb to their highest since mid-May, followed last week's announcement of US Treasury bond buybacks. This move has rekindled concerns over US fiscal policy and the potential for dollar weakness, which are supportive factors for gold. Analysts, such as Wael Makarem of Exness, suggest that a renewed deterioration in confidence regarding US fiscal sustainability could be significant for gold, especially given the Treasury's buyback plans and their impact. US Treasury yields have also climbed to 19-year highs, yet gold prices have simultaneously reached a three-month high, defying the traditional inverse relationship where rising rates push gold lower. This divergence is attributed to growing distrust of America's fiscal position rather than inflation fears, with long-term yields reflecting doubts about fiscal credibility.
Retail investors are actively moving into gold ETFs, with significant inflows into products like the ACE KRX Gold Spot ETF in South Korea. Net purchases by retail investors in this ETF have exceeded 200 billion won ($145 million) since the start of the year, with over 65.5 billion won flowing in during August alone. The fund's net assets stood at $4.27 trillion, making it the largest commodity ETF in the domestic market. The accessibility and cost-efficiency of ETFs, which avoid value-added taxes, fabrication fees, and storage costs associated with physical gold, are attracting capital. Central bank demand also remains a strong pillar, with the People's Bank of China expanding its gold reserves by 20 metric tons in July, extending its buying streak to 21 consecutive months and reaching a record 2,366 tonnes.
Gold's rally has seen an approximately 15 percent increase in August, with the metal briefly topping $4,680 an ounce. This strong performance is also attributed to factors like softer crude oil prices, which reduce inflationary concerns and push the Fed towards a more dovish stance, potentially leading to rate cuts. A weakening US dollar, partly influenced by the US Treasury's plan to double its buybacks of longer-dated Treasury securities to at least $4 billion per operation, also contributes to gold's momentum by making it cheaper for international buyers. Furthermore, rising concerns over the US debt crossing the $40 trillion mark and volatile equity markets are driving investors towards gold as a diversification tool. According to Reuters technical analyst Wang Tao, spot gold may retest resistance at $4,681, with a break potentially leading to gains into the $4,707 to $4,743 range.
On Wednesday, August 26, physical gold retreated from an early spike above $4,700, trading near a three-month high. The spot price was $4,624.29 per ounce, down $34.02 (-0.73%) on the day. This was partly due to profit-taking and firmer real yields after the July reading of the core PCE index showed a 0.2 percent increase month-on-month and held at 3.3 percent year-over-year, in line with forecasts but still above the 2 percent target. This "sticky" inflation outcome nudged real yields higher and trimmed the odds of a near-term rate cut, which is a textbook headwind for non-yielding assets like gold.
