Gold nears 15-week high ahead of Jackson Hole

Gold prices rose in European trading on Thursday, resuming gains that were temporarily halted in the previous session and moving closer to a 15-week high amid active investment demand for the precious metal.

The gains were capped by a stronger US dollar against a basket of global currencies, particularly after US Personal Consumption Expenditures data kept expectations of another US interest rate hike before the end of the year alive.

To reassess those expectations, markets are awaiting the start of the annual Jackson Hole Economic Symposium and Federal Reserve Chair Kevin Warsh’s speech on Friday.

The Price

• Gold prices rose 1.1% to $4,643.14, from an opening level of $4,594.54, after recording a session low of $4,593.63.

• At Wednesday’s settlement, gold lost 1.35%, its first decline in four sessions, amid correction and profit-taking from a 15-week high of $4,696.79 an ounce.

US dollar

The US Dollar Index rose more than 0.1% on Thursday, holding gains for a second consecutive session and reflecting continued strength in the US currency against a basket of global currencies.

As we know, a stronger US currency makes dollar-denominated gold bullion less attractive to buyers holding other currencies.

US Commerce Department data showed that the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 3.7% year-on-year in July, exceeding expectations for a 3.6% increase and matching the previous reading for June.

The data kept market expectations for a Federal Reserve interest rate hike by the end of the year alive, with investors awaiting Kevin Warsh’s Jackson Hole speech for crucial clues about the future path of US monetary policy.

US interest rates

• According to the CME FedWatch Tool, markets currently price a 64% probability that the Federal Reserve will leave interest rates unchanged at its September meeting, compared with a 36% probability of a 25-basis-point rate hike.

• For the December meeting, markets price a 26% probability of no change in interest rates and a 74% probability of a 25-basis-point rate hike.

Jackson Hole

The annual Jackson Hole Economic Symposium begins later today, with most governors and heads of major global central banks scheduled to deliver speeches on Friday, led by Federal Reserve Chair Kevin Warsh.

Gold outlook

We expect that if the US dollar continues to strengthen against a basket of currencies, gold could surrender its current gains and potentially move into negative territory, pulling away from its 15-week highs.

Attention is now shifting toward Jackson Hole and Kevin Warsh’s remarks. If his comments are less hawkish than markets expect, expectations for a US interest rate hike this year could decline, which would support higher gold prices.

SPDR

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by around 2.85 metric tons on Wednesday, marking a second consecutive daily decline and bringing total holdings down to 1,045.50 metric tons.