Gold Pulls Back as September Rate-Hike Odds Rise
Key Takeaways
- •Gold fell about 3.2% last week to $4,467 an ounce, while silver dropped roughly 3.8% to just above $67 an ounce.
- •Markets now see the odds of a September rate hike at more than 50% after Kevin Warsh said inflation must show clear progress toward the Fed’s 2% target.
- •Gold-backed ETFs took in more than $6 billion in the week ending August 21, with North American investors contributing most of the inflows.
- •Gold is still up about 10% in August and is heading for its strongest monthly gain since January.
- •Friday’s August employment report may shape rate expectations, with a weak reading likely to support gold and silver and a stronger one likely to keep pressure on them.
Gold Pulls Back as September Rate-Hike Odds Rise
Gold and silver prices are stabilizing after what appears to be a market overreaction on Friday to Federal Reserve Chairman Kevin Warsh's surprisingly hawkish message at the Fed’s annual Jackson Hole gathering.
Gold finished last week at $4,467 an ounce, down about 3.2% for the week and ending a three-week winning streak. Silver fell roughly 3.8% to close just above $67 an ounce. Much of those losses came on Friday after Warsh’s remarks.
Warsh told markets this past Friday that the central bank needs to see convincing evidence that inflation is moving back toward its 2% target.
Investors interpreted the comments as a warning that another interest rate hike could come as soon as September.
Markets are now pricing the odds of a September rate hike at more than 50%. That pushed shorter-term Treasury yields sharply higher and strengthened the U.S. dollar on Friday, both of which are typically headwinds for precious metals.
There is, however, an important wrinkle in the recent weakness. Investors have continued pouring substantial amounts of money into gold. Global gold-backed ETFs attracted more than $6 billion during the week ending August 21, adding nearly 47 metric tons of metal. North American investors accounted for the majority of those inflows, underscoring that demand has not disappeared even as prices reacted to the Fed outlook.
Despite the sharp pullback at the end of last week, gold remains up roughly 10% during August and is on track for its strongest monthly gain since January.
At the same time, geopolitical tensions are again competing with Fed policy for investor attention. Oil prices jumped more than 3% Monday after renewed fighting between the United States and Iran near the Strait of Hormuz. Brent crude moved back above $90 per barrel.
A sustained rise in energy prices could add another layer of inflationary pressure, potentially complicating the Fed’s efforts to bring inflation under control.
That leaves precious metals caught in a tug-of-war. Higher interest rates and a stronger dollar can pressure gold and silver in the short run, while persistent inflation, geopolitical instability, and concerns over the longer-term fiscal picture continue to support demand for tangible assets. For traders and long-term holders alike, the key near-term variables are whether rate expectations keep rising and whether incoming data confirm or challenge that view.
Attention now turns to Friday’s August employment report. After July payrolls unexpectedly declined by 23,000 jobs, another weak report could quickly reduce expectations for a September rate hike and provide renewed support for gold and silver. If the labor market shows more resilience, the focus is likely to stay on the Fed’s inflation threshold and the stronger dollar that followed Warsh’s remarks.
For now, the metals are giving back a portion of their strong August gains, but the broader monetary, fiscal, and geopolitical forces behind the rally remain in place.
About the author
Money Metals Exchange is an online bullion dealer that has been in business since 2010 and has been voted the Best Overall Precious Metals Dealer by Investopedia. Their website is MoneyMetals.com .
