Gold prices have been hovering around the $4,600 mark, with spot gold at $4,609.97 per ounce and U.S. gold futures for December delivery at $4,664.40. This comes after a 1.4% decline on Wednesday, the biggest one-day drop in a week. Gold had previously reached its highest point since mid-May earlier this week, driven by renewed concerns about dollar debasement following the U.S. Treasury's increase in long-dated bond buybacks. Investors are closely watching for remarks from Fed Chair Kevin Warsh at the Jackson Hole symposium on Friday for insights into the Fed's inflation outlook and interest rate strategy.
The Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, rose 3.7% in the 12 months through July, unchanged from June and slightly above the 3.6% forecast by economists. This sticky inflation figure, along with other recent data, has led to a modest recovery in the U.S. Dollar. Higher interest rates typically diminish gold's appeal as it is a non-yielding asset. Despite this, expectations for a September U.S. rate hike have decreased to 34%, while the probability of a hike by December remains at 74%, according to the CME FedWatch Tool.
Analysts like Bob Haberkorn, senior market strategist at StoneX, remain bullish on gold due to strong demand from exchange-traded funds (ETFs) and central banks using it as an alternative asset to the dollar. Gold's resilience, even with hotter-than-expected inflation data that increased the probability of a September hike to around 44% from 36%, suggests investors are also considering fiscal and sovereign risks. The recent rally in gold, which gained over 5% last week and 15% in August, is being supported by the "currency-debasement trade" as concerns over U.S. debt and Treasury intervention continue to outweigh the prospect of higher Fed rates.
