Gold has climbed back toward $4,400 an ounce in August after a sharp spring and summer slide, as fading odds of a Federal Reserve rate hike and a weakening dollar draw buyers back to the metal. UBS expects the rally to extend toward $5,000 by the first half of 2027.
Gold is trading at around $4,400 an ounce, a gain of 8% in less than two weeks. The rebound follows a rough stretch: the metal hit an all-time high of $5,354 an ounce in late January, then fell 25% over the following five months, dropping below $4,000 an ounce by mid-July.
Rate-hike odds fade
Gold's price tends to move on macroeconomic forces, including inflation, currency swings, and monetary policy, among others. Futures markets now assign a 50% chance that the Fed leaves its target rate unchanged at its mid-September meeting, a sharp shift from a month ago, when traders were betting heavily on a hike. Much of that change traces to a weak July jobs report published last week, since with the labor market apparently weakening, a rate hike by the Fed is less likely. When yields and rates fall, or simply stop rising, gold becomes more attractive because holding it carries less opportunity cost.
A weaker dollar adds support
The dollar has also weakened in recent weeks on concerns over large U.S. fiscal deficits, and a softer dollar tends to draw more buyers into gold. Central banks have reinforced that demand since Russia's 2022 invasion of Ukraine, when the U.S. froze Russia's foreign exchange reserves; many have since stocked up on gold to diversify away from the dollar, an ongoing trend that has bolstered the metal's price in recent years.
Investors interested in allocating a small portion of their portfolios to gold to hedge against inflation and market pullbacks can consider funds such as SPDR Gold Shares and iShares Gold Trust, both of which own physical gold bullion. UBS forecast last week that gold would reach $5,000 again in the first half of 2027, nearing its January record.
Source: The Motley Fool
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