Gold hits 3-month high, eyes $4,700 as dollar weakens and Fed decision looms

Gold surged to its highest level in over three months on Monday, propelled by a weaker US dollar and renewed investor interest in hard assets ahead of key US inflation data and a crucial speech from Federal Reserve Chair Kevin Warsh.

Gold advances amid dollar softness

Spot gold climbed 0.8% to $4,641.27 per ounce during Asian trading, reaching its strongest point since May 15. US gold futures also ascended, touching approximately $4,697.70. The precious metal’s rally follows a more than 5% weekly gain, driven by the dollar’s decline and mounting concerns over Treasury policy and US fiscal stability.

The US dollar remained near multi-month lows on Monday after a sharp drop last week. This continued softness followed the Treasury Department’s decision to increase buybacks of longer-term securities in an effort to improve market liquidity following surging borrowing costs on long-term debt.

This move has not only driven down yields but also triggered renewed anxiety about US debt sustainability and the dollar’s purchasing power. As a result, investors have turned to scarce assets, including gold and Bitcoin, as perceived hedges against potential dollar weakness.

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Marc Chandler, managing director at Bannockburn Global Forex, noted that gold’s move above $4,600 has improved its technical outlook. He indicated a convincing push beyond this level could open the door for further gains toward $4,680, though he warned that the current momentum appears stretched after the recent rapid advance.

Chandler commented that surpassing the $4,600 mark has positioned gold for potential further gains, but also highlighted the increasing risk of an overextended rally following such strong moves in recent sessions.

Markets await PCE data and Warsh’s Jackson Hole speech

Attention now turns to US macroeconomic indicators and monetary policy signals. The Bureau of Economic Analysis is scheduled to release July’s personal income and spending data, including the PCE price index, on Wednesday, August 26. The previous PCE inflation reading came in at 3.7% for June, notably above the Federal Reserve’s 2% target.

Federal Reserve Chair Kevin Warsh is set to deliver the keynote address at the annual Jackson Hole Economic Policy Symposium on Friday, August 28. His speech will be closely monitored, especially after the Fed expressed increased concern over inflation and hinted at possible further tightening at its July meeting.

Despite these concerns, market consensus still expects the Fed to keep rates steady in September, although futures reflect some chance of a quarter-point increase. Under typical circumstances, higher rates would weigh on non-yielding assets like gold.

Lukman Otunuga, analyst at FXTM, remarked that the upcoming PCE report and Warsh’s address could shape the precious metal’s direction heading into September, with dollar movements remaining a central factor.

Otunuga emphasized that macroeconomic data and Fed communication are set to play a pivotal role in shaping expectations for gold’s near-term performance.

Mini dictionary: PCE price index, or Personal Consumption Expenditures price index, is a key inflation measure tracked by the Federal Reserve, reflecting changes in the prices of goods and services consumed by individuals.

Geopolitical tensions bolster haven demand

Rising geopolitical risks are offering additional support to gold. US officials are preparing to implement tougher sanctions against Iran and its trading partners amid ongoing disputes over the strategic Strait of Hormuz.

Washington has described the upcoming measures as an aggressive financial campaign designed to restrict Tehran’s ability to participate in global trade and access funding. Oil prices slipped on Monday as traders took profits ahead of the sanctions announcement, but the confrontation continues to fuel inflation fears and broader market volatility.

Silver prices held near $69 per ounce, while platinum traded around $1,879 and palladium at $1,350. The central question for gold is whether it can maintain levels above $4,600 as investor focus shifts toward inflation and Federal Reserve policy.

Should inflation data soften or Warsh adopt a more flexible tone, gold’s rally might find further support. Conversely, a renewed rise in real yields would likely challenge the recent breakout.