Gold prices have staged a rebound in August, driven by growing expectations that the Federal Reserve will hold its benchmark interest rate steady and by sustained gold purchases from central banks worldwide.
According to Investing.com, gold futures for December delivery closed at $4,465.42 per ounce on Wednesday on the New York Mercantile Exchange, up 0.55 percent from the previous session. That marks an 11.35 percent gain from the July 13 close of $4,005.
Gold futures had surged to an all-time closing high of $5,318 in late January before sliding to $3,990 on June 24 — a decline of roughly 25 percent from the peak. Prices then hovered around $4,000, trading in a narrow range through early August.
The earlier weakness in gold was driven by rising oil prices stemming from the US-Iran war and concerns about Fed rate hikes. Higher oil prices and rising long-term interest rates pushed up real interest rates, weighing on gold even amid geopolitical risk. Inflation fears tied to the Iran conflict also fueled expectations of further Fed tightening, adding downward pressure.
The recent rebound has been underpinned by expectations that the Fed will keep rates on hold. A US jobs report released Friday came in well below forecasts, cooling rate-hike expectations. Nonfarm payrolls fell by 23,000 last month, far short of the market consensus of an 80,000 gain.
Inflation has also shown signs of easing. The US Bureau of Labor Statistics said Wednesday that the consumer price index rose 3.4 percent in July from a year earlier. Both the headline and core CPI readings, on a year-over-year and month-over-month basis, came in line with economist forecasts compiled by Dow Jones.
US consumer inflation has now slowed for two consecutive months, easing from 4.2 percent in May to 3.5 percent in June and then to 3.4 percent in July. Analysts say the Fed may now feel comfortable holding rates steady while it assesses the economic outlook.
The probability of a September rate hike implied by the CME FedWatch tool fell from around 50 percent to roughly 40 percent on Wednesday.
"Concerns about Fed rate hikes driven by inflation fears tied to the Iran war had weighed on gold, but the deterioration in employment data has created ideal conditions for a gold price rally — combining inflation with economic slowdown — and has served as a genuine upside catalyst," said Hong Seong-gi, a researcher at LS Securities.
"The more clearly inflation and employment show signs of slowing, the more likely market rate expectations will shift toward a hold," said Choi Ye-chan, a researcher at Sangsangin Investment & Securities. "If the roughly 1.2 rate hikes still priced into the market are unwound, that would serve as an additional upside driver for gold."
Gold purchases by global central banks and inflows into gold ETFs are also providing support. Net central bank gold purchases, which had plunged to 57 tonnes in the first quarter, recovered to 289 tonnes in the second quarter. The People's Bank of China, the leading buyer, has now been a net purchaser for 20 consecutive months.
The Bank of Korea also began buying gold ETFs in the third quarter. The central bank announced Monday that it had already started purchasing gold ETFs in the second quarter as part of a framework to build a domestic gold procurement system — its first expansion of gold exposure in 13 years.
More than $1.78 billion has flowed into SPDR Gold Shares (GLD), the world's largest gold ETF, over the past month, pushing its total assets under management above $141.5 billion.
Analysts at domestic brokerages see gold reclaiming $5,000 before year-end. "The weakness in gold since March has reflected not only the disappearance of Fed easing expectations amid surging oil prices, but also the added burden of rising short-term real interest rates," said Hwang Byeong-jin, a researcher at NH Investment Securities. "The retreat in tightening fears and the growing possibility of a hold — against a backdrop of slowing employment data since last month — should support gold's push back toward $5,000 this year."
Choi added that historical patterns point in the same direction. "Looking at past cycles following all-time highs in gold, prices have on average bottomed out over eight months and recovered to around 90 percent of the peak within 11 to 12 months — which suggests gold could approach $5,000 by year-end," he said.
moon@heraldcorp.com
