Gold extended its rebound on Thursday as the US dollar and Treasury yields weakened further, while expectations for a Federal Reserve interest rate hike this month eased.
Spot gold climbed as much as 2.9% to move back above US$4,500 ($6,352) an ounce, while US gold futures rose 3.2% to surpass US$4,550.
The move marked bullion’s strongest intraday gain since 19 August and extended a two-day recovery that has restored more than $1 trillion in market capitalisation.
Earlier this week, gold had fallen to near a one-month low after Federal Reserve Chair Kevin Warsh struck a hawkish tone at the Jackson Hole symposium, driving expectations of a September rate hike sharply higher.
Higher interest rates typically weigh on non-yielding assets such as gold by increasing the relative appeal of bonds and other interest-bearing investments.
Rate hike expectations
Those expectations have since started to moderate after Federal Reserve Governor Christopher Waller said he expects “reasonable” inflation readings next month.
Traders subsequently pared back their bets on further monetary tightening.
The probability of a September rate hike had climbed above 60% following Warsh’s speech, more than double the level seen beforehand, according to the CME FedWatch Tool.
That probability has now fallen to around 50%.
Saxo Bank Head of Commodity Strategy Ole Hansen said gold’s rebound “was already underway before Fed Governor Christopher Waller came to the rescue” by reducing expectations for a September hike.
“Before his comments, gold was already moving higher, supported by a weaker dollar, not least against the Japanese yen,” Hansen added.
The US dollar index continued to retreat from a nearly three-week high on Thursday, while Treasury yields eased from multi-year highs, providing further support for bullion.
“Modestly weaker dollar, and slightly lower US rates are helping gold,” UBS analyst Giovanni Staunovo said.
“With the Fed currently offering no forward guidance, gold remains highly sensitive to shifts in market expectations for the September meeting.”
Jobs report in focus
Investors are now turning their attention to Friday’s closely watched US nonfarm payrolls report for the next major signal on monetary policy.
The report follows Wednesday’s ADP employment data, which showed US private payrolls increased moderately in August.
Markets will be watching for signs that the labour market is cooling enough to reduce the need for higher interest rates, while persistent inflation remains a key risk for bullion.
“With hike pricing remaining elevated amid lingering inflation concerns, timing remains the main question for the next leg higher in the yellow metal,” TD Securities Senior Commodity Strategist Ryan McKay wrote in a note to Bloomberg.
Despite recent volatility and the continuing prospect of tighter US monetary policy, gold remains up more than 4% this year.
Write to Jackson Chen at Mining.com.au
Image: Deutsche Goldreserven
