Gold steadies as investors await Warsh’s Jackson Hole address
Gold prices were little changed on Thursday as investors prepared for a closely watched speech from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium later this week.
By 05:30 ET, spot gold was up 0.1% at $4,597.39 an ounce, while gold futures slipped 0.1% to $4,649.64 an ounce.
The precious metal remains on course for a weekly gain of more than 1%, supported in part by expectations that the Federal Reserve could leave interest rates unchanged at its September meeting rather than respond immediately to energy-driven inflation with another increase in borrowing costs.
Recent declines in oil prices have eased some inflation concerns as markets grow more hopeful about a diplomatic breakthrough in the Middle East and the potential reopening of the Strait of Hormuz. However, the Fed's preferred inflation measure continues to point to persistent price pressures.
Analysts have noted that even if the Fed keeps rates unchanged in September, investors still expect further tightening later in the year. Higher interest rates can help restrain inflation, although they can also slow economic activity.
For gold, an extended period of elevated rates can create pressure because bullion does not offer a yield, increasing the opportunity cost of holding the metal.
David Morrison, Senior Market Analyst at Trade Nation, said gold has developed a "strong inverse relationship" with the U.S. dollar. A stronger dollar can make gold more expensive for buyers using other currencies and therefore reduce demand.
Investor attention is now firmly focused on Warsh's speech at Jackson Hole on Friday, which will be his first major address since becoming Federal Reserve chair.
Markets are looking for clearer guidance on how he intends to respond to inflation that has remained above the Fed's 2% target for an extended period.
Warsh is also expected to face questions over his move away from traditional forward guidance and the relationship between monetary policy and the bond market, particularly after the U.S. Treasury doubled its planned buybacks of longer-dated government debt.
ANZ said the Treasury's latest actions, together with broader concerns surrounding fiscal policy, have helped sustain the debasement trade.
In practical terms, investors have continued buying gold as protection against the possibility that persistent government deficits, heavy borrowing and policies designed to contain long-term yields could weaken the purchasing power of the dollar.
This theme has helped offset some of the pressure created by expectations for higher interest rates. Gold remains around 14% higher this month despite Wednesday's decline, with the recent Treasury intervention helping provide renewed momentum.
The metal also continues to trade above its 200-day moving average, a technical level widely followed as an indicator of longer-term market strength.
Gold-backed exchange-traded funds have recorded strong inflows during the latest rally, while continued central bank buying and concerns over the sustainability of U.S. fiscal policy remain supportive of the longer-term outlook.
