Gold Set for Third Weekly Advance

Gold prices fell toward $4,560 an ounce on Friday, their lowest level in a week, as investors digested what was perceived as hawkish commentary from Federal Reserve Chair Kevin Warsh. In his first major speech since becoming chair in May, Warsh warned that inflation is not meaningfully slowing and said policymakers need to be confident that underlying price pressures are easing; otherwise, the central bank still has “work to do.” He reiterated that the Fed remains committed to returning inflation to its 2% goal, which he described as a “firm and fixed” target, and said financial conditions are not currently restrictive. His closely watched remarks provided greater clarity on his economic and policy views after criticism that his more limited communication strategy had left markets with little guidance on the near-term outlook. Markets responded by raising the probability of a September rate hike to near 50%, according to CME FedWatch.

Gold steadied around $4,600 an ounce on Friday and was set to end the week little changed as investors cautiously awaited Federal Reserve Chair Kevin Warsh’s speech at the annual Jackson Hole symposium later in the day for clues about the outlook for US interest rates. Markets are currently pricing in around a 65% chance that the Fed will keep rates unchanged at its upcoming policy meeting in September. Still, a hotter-than-expected US inflation reading strengthened expectations for a Fed rate increase before year-end, with the probability of a hike by December remaining above 70%. Meanwhile, gold continued to benefit from the so-called debasement trade, as the US Treasury’s expanded debt buybacks heightened concerns over the risk of a US debt crisis and further dollar weakness. On the geopolitical front, oil prices remained elevated as escalations in the Russia-Ukraine war offset signs of diplomatic progress in the Middle East.

Gold was little changed around $4,590 an ounce on Thursday after posting its biggest one-day percentage decline in a week, as investors awaited fresh policy signals from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium on Friday. Despite slightly hotter US inflation data, concerns over global debt continue to support demand for the precious metal. Gold reached a more than three-month high earlier this week, with the latest rally fueled by renewed concerns over dollar debasement following the US Treasury's decision to increase buybacks of older, long-dated bonds. Investors are looking to Warsh's debut Jackson Hole speech for clues on the Fed's approach to bringing inflation back to target. Data on Wednesday showed the PCE price index rose 3.7% year-on-year in July, slightly above expectations. Markets now see a 38% chance of a September rate hike, while the probability of a hike by December remains above 70%, according to the CME FedWatch Tool.