Gold extended its rally on Thursday, climbing above $4,630 an ounce as investors continued to favor the currency-debasement trade. Concerns over US debt and Treasury market intervention are proving more influential than the prospect of higher Federal Reserve interest rates.
Spot gold gained about 0.8% to $4,630.09 in Asian trading, while US futures rose 0.7% to $4,685.50. The metal remains near the three-month high hit earlier this week after a more than 5% advance last week.
The latest leg higher comes despite hotter-than-expected US inflation, which has revived expectations for another Fed rate hike. All eyes now turn to Fed Chair Kevin Warsh's keynote speech at the Jackson Hole symposium on Friday, which could set the tone for the near-term direction of bullion.
Fiscal fears keep debasement trade alive
Gold's August surge accelerated after the US Treasury announced it would at least double liquidity-support buybacks for longer-dated government bonds to $4 billion per operation starting September 9. The program is designed to improve market liquidity rather than permanently cap yields, but it has intensified debate over US fiscal policy and the dollar's purchasing power.
ANZ Research analysts told The Wall Street Journal that gold demand continues to benefit from the dollar-debasement trade, even though higher interest rates remain a potential headwind. The bank noted gold rose another 0.5% to about $4,618 during Thursday's Asian session.
The concern extends beyond a single Treasury program. Investors are increasingly using bullion as a hedge against persistent deficits, rising government borrowing, and uncertainty over how policymakers plan to manage elevated long-term yields.
Hot PCE keeps Fed hike risks on the table
Wednesday's inflation data complicated the bullish narrative. The PCE price index rose 0.2% in July and 3.7% year-over-year, up from 3.6% in June and slightly above expectations. Core PCE also increased 0.2% on the month and held at 3.3% annually, showing little progress toward the Fed's 2% target.
Rate markets responded by raising the probability of a September hike to about 44%, up from roughly 36% before the report. Expectations for at least one increase by year-end strengthened further. Higher rates and real yields increase the opportunity cost of holding non-yielding gold, but bullion's resilience suggests investors are treating monetary policy as only one part of the story.
Fiscal concerns, geopolitical uncertainty, and persistent central-bank demand continue to provide an unusually strong floor for prices.
Warsh speech could reignite $5,000 target
Attention now turns to Warsh, who delivers keynote remarks at Jackson Hole at 10 am ET Friday. Investors will look for clarity on how much inflation improvement the Fed needs before it can comfortably hold rates steady.
State Street Investment Management's Aakash Doshi told Kitco News that $5,000 gold by year-end is firmly back in play as sovereign debt concerns return to global markets. Gold has gained roughly 15% in August, putting it on track for its strongest month in decades.
A hawkish Warsh could push yields and the dollar higher, slowing the rally. A balanced message that leaves September policy open, however, may allow fiscal concerns to remain the dominant driver.
Silver rose to around $69.28 an ounce on Thursday, while platinum and palladium also advanced.
This article is for informational purposes only and does not constitute financial advice.
