On Wednesday, gold broke its impressive five-day winning streak but managed to hold above the psychologically important $4,600 per ounce level. The 0.7% correction failed to erase the monthly gain, and the entire market is now focused on the upcoming speech by the Federal Reserve Chair at Jackson Hole.
Fresh inflation data once again came in above the Fed's target level, which immediately boosted the dollar and Treasury yields. This is a classic scenario for pressuring the precious metal, but in the current environment, it works differently. Investors, spooked by the prospect of a ballooning budget deficit and structural weakening of the U.S. currency, continue to actively buy safe-haven assets, ignoring tactical signals from monetary policy.
Rally on Devaluation Fears
Despite today's correction, gold has gained about 14% since the start of the month. Notably, a week earlier, the U.S. Treasury unexpectedly intervened in the bond market, which only strengthened the "devaluation" narrative and pushed capital into hard assets. In my assessment, this intervention was the catalyst that put the metal on a trajectory not seen since 1999.
The technical picture also confirms a shift in sentiment: gold has confidently settled above the 200-day moving average, which many traders perceive as a signal of a long-term trend reversal. Flows into gold-backed ETFs have risen by more than 28 tonnes over the past week — the highest reading since January. The inflow into funds, which began back in the summer, has finally reversed a two-month period of outflows.
Warsh's Debut: Hawk or Dove?
The Jackson Hole symposium is not just an annual gathering of central bank heads. It was here in 2022 that the Fed announced its shift to a hawkish course. Now all attention is on Kevin Warsh, who is set to deliver his first major speech in this role on Friday. He will have to respond to criticism directed at him and, more importantly, outline the direction for fighting inflation.
If Warsh takes a "hawkish" tone, we will see a rise in real yields and a stronger dollar, which will pressure gold. However, a "dovish" signal, on the contrary, would trigger a new round of rally and fresh local highs. Given that the market has already priced in a significant portion of aggressive rhetoric, even a neutral speech could be perceived as positive for the metal.
My view: In the current macroeconomic environment, the fundamental drivers for gold — fiscal expansion and geopolitical instability — look far more significant than the Fed's tactical moves. Any pause in the tightening of rhetoric will become a powerful catalyst for rewriting historical highs.