Gold prices slipped on Wednesday, a day after reaching their highest level in more than three months, as investors turned their attention to key US inflation data that could influence expectations for the Federal Reserve’s next interest-rate decision.
At 10:10am Bangladesh time on Wednesday, 26 August, spot gold was down 0.3 per cent at $4,642.74 an ounce. The decline came after bullion climbed to its highest level since mid-May on Tuesday. Gold had also recorded a notable rise last week following the US Treasury Department’s announcement of a bond buyback programme, adding to the recent momentum in the precious metals market.
US gold futures, meanwhile, moved in the opposite direction, rising 0.1 per cent to $4,700.70 an ounce.
Market attention is now firmly focused on the United States’ July Personal Consumption Expenditures (PCE) price index, one of the inflation measures most closely watched by the Federal Reserve. The data were scheduled for release at 12:30pm Greenwich Mean Time on Wednesday.
The figures could provide fresh clues about the direction of US monetary policy. A weaker-than-expected inflation reading could strengthen expectations that the Federal Reserve may consider cutting interest rates, while a stronger reading could reinforce the case for keeping rates higher for longer.
Investors are also awaiting remarks from Federal Reserve Chairman Kevin Warsh at the Jackson Hole conference on Friday. Analysts say gold could receive further support if inflation shows signs of easing and Warsh adopts a flexible or balanced tone on the prospect of lower interest rates.
Wael Makarem, financial markets strategist at Exness, said softer inflation alongside a more accommodative message from the Federal Reserve could strengthen expectations of lower real interest rates in the United States. That would reduce the opportunity cost of holding gold, which does not generate interest income, potentially making the precious metal more attractive to investors.
Gold is often supported when interest rates or bond yields fall because the relative appeal of non-yielding assets improves. Conversely, higher real yields can place pressure on bullion as investors have greater incentives to hold interest-bearing assets.
US economic data in focus
Recent US economic indicators have already influenced market expectations. Data released earlier this month showed that non-farm employment had fallen unexpectedly, while consumer inflation was broadly in line with expectations.
The combination of softer labour-market conditions and contained inflation has reduced some expectations for tighter monetary policy. According to the CME FedWatch tool, markets currently see a 61.6 per cent probability that the Federal Reserve will leave interest rates unchanged next month.
However, expectations can shift quickly when major economic indicators are released. The PCE price index is therefore being closely monitored for signs of whether inflation is continuing to move towards the Federal Reserve’s longer-term objective.
Geopolitical risks remain relevant
Beyond US monetary policy, investors are also assessing geopolitical developments and their potential impact on energy markets and global financial stability.
Iran has reportedly resumed discussions with neighbouring Oman over the operation of the Strait of Hormuz, a strategically important waterway for global energy shipments. Oil prices subsequently moved lower amid signs of renewed dialogue.
International Monetary Fund Managing Director Kristalina Georgieva said the global economy had weathered the energy shock caused by the war involving Iran better than initially feared. She nevertheless expressed concern about deteriorating financial conditions in some countries.
Such uncertainties can influence demand for gold because the precious metal is widely regarded as a store of value during periods of financial and geopolitical stress. Any renewed concerns over global economic stability could therefore provide additional support to bullion.
The US Treasury’s recent bond buyback plans have also attracted market attention. Treasury buybacks are intended to help manage the composition and liquidity of government debt, and developments in the US government bond market can have wider implications for yields, the dollar and investor demand for alternative assets such as gold.
Technical levels under watch
Technical analysts are also monitoring key price levels after gold’s recent advance.
Reuters technical analyst Wang Tao said spot gold could retest the $4,681 resistance level. If prices break above that threshold, bullion could potentially move towards the $4,707-$4,743 range, according to his analysis.
The immediate direction of the market, however, is likely to depend heavily on incoming US economic data and signals from the Federal Reserve. Investors will be assessing not only the inflation figures themselves but also what they could mean for borrowing costs, Treasury yields and the US dollar.
Other precious metals recorded gains on Wednesday. Silver rose 0.9 per cent to $69.26 an ounce, while platinum gained 0.4 per cent to $1,865.90. Palladium advanced 1.3 per cent to $1,343.75 an ounce.
Gold’s latest decline therefore comes after a strong run rather than a broad retreat across precious metals. With US inflation data and the Federal Reserve’s policy signals now in focus, traders are likely to remain cautious as they assess whether the recent rally can continue or whether bullion prices will undergo a deeper correction.
