Gold has given back its recent rally as Fed Chair Kevin Warsh's Jackson Hole remarks push up the odds of a September rate hike. Renewed US-Iran military action is lifting oil prices at the same time, but the rate effect is dominating gold's usual safe-haven bid.
Gold continues to sell off as Fed Chair Kevin Warsh's Jackson Hole remarks from last Friday keep rate-hike expectations elevated. Warsh reaffirmed that underlying inflation isn't cooling fast enough and that the Fed still has work to do to bring it back to target.
Rate-hike odds jump after Warsh comments
Traders are now pricing in a much higher probability of a September hike. Odds jumped from around 36% to roughly 56-58% on the CME FedWatch tool in the hours following his comments. The target rate probability of a 25-basis-point hike currently sits at 70%.
A higher rate hike probability raises the opportunity cost of holding a non-yielding asset like gold, making it less attractive to investors.
Iran strikes add oil-driven pressure
Renewed US military action against Iran is compounding the pressure on gold. Washington struck Iranian targets in the Strait of Hormuz over the weekend, the first such action in roughly a month, and Iran responded in kind. Brent crude jumped more than 3% on the news, with WTI following a similar path — both benchmarks are now sitting near multi-week highs.
This combination is uncomfortable for gold investors. Normally, geopolitical risk and inflation concerns support the metal as a hedge. But when the inflation driver is energy-cost-led and the Fed is leaning hawkish in response, the rate effect is currently dominating, outweighing gold's usual safe-haven bid.
Gold has given back all its recent rally and is testing levels last seen at the beginning of August. A retest of the 50-day simple moving average — currently at $4,218/oz — looks likely before the recent trading zone between $4,200/oz and $4,000/oz comes into play.
Investors should watch for any further escalation in the Iran conflict, the upcoming US jobs report, and any Fed commentary ahead of the September FOMC meeting.
Source: Investing.com
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