Although the author of these lines recently enjoyed a few days of vacation, an eye remains fixed on the financial markets — both out of old habit and out of genuine interest. And naturally, especially on the noblest of all metals: gold. All the more so since I was able to spend a few days in one of the world's largest gold-producing countries. After a robust rise from around 4,000 US$ per ounce to almost 4,700 US$ per ounce, gold prices lost some momentum toward the end of August.
Warsh speech drives rate expectations and yields
The one "responsible" for this was Federal Reserve Chair Kevin Warsh, who gave a speech at the Fed's annual symposium in Jackson Hole in which he repeatedly vowed to push US inflation back toward the 2.0 percent target as quickly as possible, under all circumstances. Financial markets interpreted his remarks as a sign that Warsh would not stand in the way of a potential rate hike. While around 0.35 percentage points of rate increases from the US central bank were priced in as of mid-August, that figure now stands at 0.60 percentage points through mid-2027. For the Fed's next meeting on September 16 in particular, interest rate futures markets now see a rate hike as more likely than a pause.
As a result, yields on two-year US Treasuries in particular rose noticeably. The US dollar's downtrend was also broken, with the currency recovering moderately. In addition, oil and gas prices remain elevated, which could keep inflation rates high over the medium term and, in turn, prompt further rate hikes from many central banks. That yields on long-dated government bonds around the globe have recently risen sharply to multi-year highs should, by contrast, tend to support gold prices over the medium term. After all, the high yields reflect some market participants' concerns about sharply rising government debt.
Gold price developments over the week
Gold prices stood at around 4,485 US$ per ounce on Thursday morning of the week before last, before reaching a three-month high of around 4,696 US$ per ounce on August 25. On August 28, however, Kevin Warsh's speech threw a wrench into things: gold prices fell that Friday from around 4,630 to 4,450 US$ per ounce. The yellow metal has struggled since then — yesterday, prices dropped as far as 4,285 US$ per ounce. They recovered quickly to 4,440 US$ per ounce overnight. At the time of writing, gold is trading slightly lower at 4,425 US$ per ounce — not dramatically lower, in other words, than two weeks ago.
Xetra-Gold: price decline and outlook
The Xetra-Gold® price also eased moderately in line with this. During regular trading hours, it initially climbed from 123.60 € per gram on Thursday morning of the week before last to exactly 124.00 € per gram on August 24. Following Kevin Warsh's speech, however, it fell back to 123.85 € by the end of that week and to 119.60 € per gram yesterday. Should the price at 7:30 a.m. hold, Xetra-Gold would start today's trading day at 122.80 €.
Market participants will be watching the upcoming US inflation data closely. First, however, tomorrow's Friday US labor market data could also move markets.
I wish all readers a few more beautiful late-summer days.