Gold has demonstrated unusual resilience, trading near $4,300 an ounce, even as hotter-than-expected US inflation data from August (consumer prices up 0.4% monthly and 3.4% annually, core inflation up 0.3%) has bolstered expectations for a Federal Reserve interest rate hike this week. This goes against the traditional market reaction where higher rates and a stronger dollar typically create headwinds for gold, which is a non-yielding asset. The 10-year Treasury yield, for instance, has climbed above 5%, levels last seen in 2007.
Commerzbank's Head of Commodity Research, Thu Lan Nguyen, noted that markets are pricing in roughly a 90% probability of a Fed rate hike. She also highlighted that renewed tensions in the Middle East have pushed up oil prices and broader interest rate expectations. Despite these pressures, gold's limited downside is attributed to markets hedging against a potential confrontation between the Federal Reserve and the Trump administration regarding interest rate policy. Commerzbank expects gold to end the year around $4,500 an ounce, down from its earlier forecast of $4,800.
Jan van Eck, CEO of VanEck, in a separate discussion, posits that gold is increasingly seen as the "second global currency" due to global policy uncertainty, geopolitical conflicts, and growing skepticism towards the US dollar. This structural demand, particularly from countries like China and India, is driving gold's multi-year trend. He suggests that US investors have been slow to embrace gold, with significant outflows from gold ETFs earlier in the year, but bullion ETFs have seen inflows in the past month. This broader trend of central banks and other nations diversifying away from an over-reliance on the US dollar is seen as a key underlying support for gold prices, regardless of immediate US inflation figures.
