Gold prices remained under pressure on Thursday, trading near $4,580 during Asian hours and around $4,577 at the start of American trading, after retreating from an intraday high of $4,643. The precious metal had previously climbed to $4,697 earlier in the week, its highest level since May 14, but buyers showed hesitation due to uncertainty surrounding the Federal Reserve's interest rate path.
The recent U.S. Personal Consumption Expenditures (PCE) Price Index data indicated that inflation remains sticky, with the headline PCE increasing 3.7% year-over-year in July (unchanged from June) and core PCE rising 3.3% year-over-year. These figures reinforced expectations that the Fed might keep interest rates higher for longer, leading to a modest recovery in the U.S. Dollar. Higher interest rates reduce the appeal of non-yielding assets like gold, which ended Wednesday with a loss of about 1.40%.
Despite the sticky inflation, the latest PCE figures, alongside recent Consumer Price Index (CPI) and Producer Price Index (PPI) data, suggest inflation is no longer accelerating sharply. This has reduced the chances of an immediate Fed rate hike, with markets currently seeing a nearly 62% chance that the central bank will maintain borrowing costs in September, according to the CME FedWatch Tool. However, there is still a 72% probability of at least one rate hike by December. Federal Reserve officials, including Kansas City Fed President Jeff Schmid and Chicago Fed President Austan Goolsbee, have expressed concerns about returning inflation to the 2% target.
Investors are now eagerly awaiting Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday for greater clarity on the interest rate outlook. Traders are hoping Warsh will provide a roadmap for controlling inflation and discuss the bond market's role. A dovish stance from Warsh could support gold prices, while a hawkish tone might push yields and the dollar higher, potentially limiting gold's gains. Elevated energy prices and ongoing Middle East tensions also pose upside risks to inflation, further influencing gold's trajectory.
Some analysts, like Aakash Doshi of State Street Investment Management, believe that $5,000 gold by year-end is still a possibility due to concerns over sovereign debt. Gold has seen significant gains in August, rising about 15% and on track for its strongest month in decades, driven partly by the U.S. Treasury's plan to increase buybacks of long-dated bonds, which has intensified debates over fiscal policy and the dollar's purchasing power.
