Key Moments
- Gold (XAU/USD) trades below $4,600 in early European dealings, retreating from a three-month high.
- July core PCE inflation held at 3.3% YoY, lifting market expectations for a September Federal Reserve rate hike to 40%.
- Iran said it is preparing conditions for reopening the Strait of Hormuz, potentially easing oil-driven inflation risks and limiting gold’s downside.
Jackson Hole in Focus as Gold Loses Altitude
Gold prices (XAU/USD) came under pressure in early European trade on Friday, slipping below $4,600 as investors locked in gains after a strong advance to a three-month peak. The metal’s pullback followed US inflation data that aligned with expectations but reinforced the prospect of additional Federal Reserve rate increases.
Market participants are now looking to Fed Chair Kevin Warsh’s upcoming appearance at the Jackson Hole Economic Symposium on Friday for signals on the future policy path and fresh direction for bullion.
US PCE Data Reinforces Rate-Hike Expectations
The US Bureau of Economic Analysis (BEA) reported on Wednesday that the core Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation measure – remained at 3.3% year-on-year in July, matching consensus forecasts. On a month-on-month basis, both the headline PCE Price Index and the core PCE Price Index increased by 0.2% in July.
The release prompted traders to markedly scale up expectations for a September rate hike. The CME FedWatch Tool showed that the implied probability of a Federal Reserve move in September rose to 40%, up from 36% prior to the data. A more aggressive policy outlook tends to be a headwind for gold, which provides no yield and can lose appeal as interest-bearing assets become more attractive, even though the metal is widely used as an inflation hedge.
| Indicator / Market Metric | Value | Period / Context |
|---|---|---|
| Core PCE Price Index (YoY) | 3.3% | July |
| Headline PCE Price Index (MoM) | 0.2% | July |
| Core PCE Price Index (MoM) | 0.2% | July |
| Implied probability of September Fed rate hike | 40% | After PCE release (up from 36%) |
Strait of Hormuz Developments Temper Inflation Fears
Offsetting some of the hawkish Fed impact, investors are monitoring diplomatic efforts around the Strait of Hormuz, a key chokepoint for energy flows. Improved prospects for a reopening are seen as potentially easing oil-related inflation risks, which in turn could limit further downside in gold.
Iran’s Security Chief Mohsen Rezaei said on Friday that Tehran is preparing a list of its conditions to open the Strait of Hormuz in response to a request by mediators, adding that conditions include ending the war in the region, per Reuters.
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