Gold failed a second time at $4,435 on Tuesday, retreating to $4,389.83 after two rejections at the same level in four sessions. The metal's August recovery is being driven almost entirely by fading bets on a Federal Reserve rate hike, and that mechanism is running out of room.
Gold spot traded $4,389.83 Tuesday, down $26.86, or 0.61%, from Monday's $4,416.75 close. The session opened at $4,416.75, ran to $4,436.15, and sold back to a low of $4,386.10 — a $50.05 range. Gold tagged $4,435 last week and failed, then tagged $4,436.15 Tuesday and failed again, establishing $4,435 to $4,450 as the ceiling until it breaks on a closing basis.
The move underneath the rejection is still real. Gold rose 10.52% over the past month and sits 33.53% higher than a year ago, and Monday's 0.50% advance carried it above $4,400 for the first time in eight weeks.
The Fed repricing is doing the work
Gold's entire August recovery traces to one shift: traders have stopped pricing a rate hike from the Federal Reserve. CME Group data puts the odds of a Fed hold at 3.50%-3.75% in September at 69.9%, with hike odds near 35%, down from close to 50% before last week's data.
Soft data drove the shift. July retail sales fell 0.6% against expectations for a 0.1% gain. The University of Michigan sentiment index dropped to 51.0 in August from 55.2 in July. July housing starts collapsed 12.4% to 1.239 million against a 1.35 million forecast.
That repricing has already produced most of its move. The advance from $4,053.11 in late July to $4,436.15 Tuesday came to $383, or 9.4%, and squeezing further upside from the same mechanism now requires hike odds to keep falling toward zero — a tall order with hold probability already at 69.9%.
Wednesday's minutes carry the risk
Fed Chair Kevin Warsh has reaffirmed commitment to reducing inflation without signaling near-term increases in borrowing costs. The July FOMC minutes land Wednesday, followed by his Jackson Hole address, and the risk sits asymmetrically: a dovish confirmation is already priced in, but a hawkish surprise is not.
The backdrop remains difficult for bullion regardless. The 30-year Treasury yield printed 5.323% Tuesday, the highest level since 2007. At the same time, the Dollar Index fell to 99.29 early Monday, its lowest level since June 5. Gold is trading the policy rate while long-dated yields trade a separate term-premium story, and the two can diverge again as fast as they aligned.
Source: Commodities Analysis & Opinion
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