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Gold prices edged higher on Monday, recovering slightly after a sharp selloff in the previous session as investors reassessed the Federal Reserve’s interest rate outlook following Chair Kevin Warsh’s hawkish comments on inflation.
Spot gold rose 0.2% to $4,464.65 an ounce at 20:53 ET (00:53 GMT), while gold futures slipped 0.4% to $4,513.50. Silver gained 0.4% to $66.64 an ounce and platinum climbed 0.7% to $1,835.35. The U.S. Dollar Index eased 0.1% to 99.60.
Gold remains roughly 10% higher in August despite Friday’s 3.2% plunge, its steepest daily decline since early June. The precious metal is on course for its strongest monthly performance since January.
Friday’s decline followed Warsh’s warning that the Fed still has work to do to return inflation to its 2% target. His remarks strengthened expectations for another interest rate increase, with markets pricing in about a 57% chance of a September Fed rate hike, according to Reuters.
Higher interest rates typically pressure gold because the metal offers no yield, making interest-bearing assets such as government bonds relatively more attractive. A stronger U.S. dollar can also weigh on bullion by increasing its cost for overseas buyers.
ANZ analysts said Warsh’s inflation warning weakened investor demand for gold by reviving expectations of further monetary tightening. However, they expect losses to remain contained as concerns over currency debasement and U.S. fiscal policy continue supporting demand.
Energy markets are adding to inflation concerns. Brent crude traded around $89.38 per barrel, while U.S. crude reached $84.50 after U.S. forces struck Iranian launchers on Larak Island on Sunday. Reports that Iran subsequently attacked U.S. forces in Jordan raised fears of further escalation and higher energy prices.
Gold’s August rally has also been supported by U.S. Treasury purchases of longer-dated government bonds, which pushed yields lower and revived concerns over government debt, currency depreciation and purchasing power.
Investors will now closely monitor upcoming U.S. employment and inflation data for clues on whether the Federal Reserve will raise interest rates in September.
