International gold prices continued to rise on Monday (August 17th), with spot gold briefly reaching around $4,416 per ounce during the Asian trading session. This was mainly due to the weakening US dollar and market support for the cooling expectations of a Fed rate hike in September.
Spot gold rose around 0.6% on Monday, touching near $4,416 per ounce; US gold futures for December delivery edged up about 0.5% to $4,458.70 per ounce. Gold prices hit a new high in over two months last week.
The US dollar index weakened on Monday, falling to 99.30 at one point, the lowest level since June 5th, thereby boosting gold prices.
However, as global bond yields rose and oil prices increased on Tuesday, the upward momentum of gold prices was suppressed, indicating that the market is currently caught between the forces of “cooling rate hike expectations” and “rising inflation risks.”
Recent US economic data showed a surprise decline in non-farm payrolls in July, weaker-than-expected retail sales, and a slowdown in the growth of both the Consumer Price Index (CPI) and the Producer Price Index (PPI). The weak economic data has prompted investors to reassess the Federal Reserve’s future monetary policy.
According to the Chicago Mercantile Exchange (CME) FedWatch tool, the market currently anticipates a probability of around 30% for a Fed rate hike in September, with a near 70% probability of rates remaining unchanged, a significant drop from about 50% a month ago.
UBS analyst Giovanni Staunovo noted that weaker-than-expected US employment and inflation data have led the market to lower its expectations for further Fed rate hikes. This has increased the relative attractiveness of gold, supporting its price.
Goldman Sachs chief economist Jan Hatzius also believes that the likelihood of a Fed rate hike in September is very low. He pointed out that weak retail sales, employment data, and subdued inflation reduce the necessity for another rate hike by the Fed in the near term.
Investors are currently awaiting the release of the minutes from the July Fed meeting. The minutes are set to be released on Wednesday, with the market hoping to find more clues about the future direction of the Fed’s interest rate policy.
The situation in the Middle East is another major factor of market concern. Middle East conflicts could drive up oil prices, increasing inflationary pressures. If energy prices remain high, the Fed may need to maintain higher rates for a longer period, which could exert pressure on gold prices.