Gold Pulls Back as Warsh Hawkish Tone Lifts Rate Bets

Key Moments

Gold Slips as Markets Reprice Fed Outlook

Gold (XAU/USD) trades under pressure around $4,445 in early Asian dealings on Monday, with the metal losing ground after a notably hawkish tone from Federal Reserve Chair Kevin Warsh at the Jackson Hole economic symposium.

Warsh cautioned on Friday that inflation has not been slowing in a meaningful way and emphasized that, until policymakers are convinced it is doing so, the central bank still has “work to do.” Following these comments, market participants increased wagers on further interest rate hikes, interpreting the remarks as Warsh coming closer than before to signaling that additional tightening may be required to curb price growth.

Higher interest rate expectations tend to be a headwind for gold, which is widely used as an inflation hedge but offers no yield, making it less appealing relative to interest-bearing assets when rates are elevated.

Rate Hike Probabilities Climb After Jackson Hole

According to the CME FedWatch tool, traders now assign a 56.9% chance to a Federal Reserve rate increase in September, up from 39.9% prior to Warsh’s speech. The probability of a December hike has also risen, with markets reflecting 88.7% odds of an additional move.

Commenting on the market reaction, independent analyst Tai Wong said, “Gold is getting slapped hard as Chair Warsh affirms that inflation isn’t meaningfully slowing and the Fed has ‘work to do.’ While it may once again be ‘speak loudly and carry a short stick,’ this will make the market price the September meeting as a coin flip.”

Geopolitical Tensions Add Complexity, Not Support

While geopolitical risks can at times bolster safe-haven flows into gold, the latest developments in the Middle East have so far failed to provide meaningful support for the metal.

Bloomberg reported on Sunday that the US military targeted Iranian rocket launchers that were preparing to deploy mines into the Strait of Hormuz, marking the first such strike in weeks after a period of relative quiet. This operation represented the first US military action against Iran in more than a month, occurring as US President Donald Trump has shifted toward a strategy focused on tightening economic pressure on Tehran.

These tensions could stoke concerns about oil-driven inflation, which in turn interacts with the outlook for monetary policy and gold’s role as an inflation hedge.

TD Securities: Upside Sentiment in Gold Seen as Intact

TD Securities noted that a firmer stance from Chair Warsh may challenge recent optimism toward precious metals but is unlikely to erase it entirely. The firm stated that “a more hawkish tone from Fed Chair Warsh would be a catalyst for some reversal in the yellow metal,” while also highlighting that “the bar is likely high to reverse the improved sentiment in precious metals,” as positioning and broader narratives remain generally constructive for the asset class.

Warsh’s Message Reinforces Hawkish Bias

Warsh’s latest communication carried a distinctly hawkish tilt, reflected in an FXS Speechtracker score of 7.4 compared with a historical average of 6.5. He stressed that the Federal Reserve needs clear evidence that underlying inflation is moving toward target or “we have work to do.”

He pointed to solid consumer spending, a steady labor market, and robust business investment, while pushing back against portrayals of financial conditions as genuinely restrictive. Warsh argued that more favorable inflation readings over the summer do not yet amount to a decisive improvement in underlying trends and reiterated that the primary emphasis must remain on price stability.

His focus on maintaining a firm 2% PCE inflation objective, the view that inflation expectations are both durable and fragile, and the observation that credit and loan markets show limited signs of true policy restraint all support a preference for tighter policy for an extended period. Historically, that kind of backdrop tends to support the US Dollar against lower-yielding currencies.

The FXS Fed Sentiment Index was unchanged on the day, moving 0.00 points to remain at an elevated 129.70, which is firmly in hawkish territory despite the absence of an incremental shift. The combination of a steady but high index reading and an above-average FXS Speechtracker score indicates that Fed communication overall continues to lean hawkish, undergirding the Dollar and keeping markets acutely focused on incoming inflation data and expectations.

Technical Picture: Uptrend Intact Above Key Moving Averages

On the daily chart, gold retains a constructive short-term outlook, with XAU/USD holding above both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. This configuration signals that the broader uptrend remains in place, even as price consolidates. The Relative Strength Index (RSI) stands at 54, pointing to mildly positive momentum and suggesting that buyers maintain an edge without the market being stretched into overbought territory.

On the upside, a break above the 20-day Bollinger upper band near $4,725 would expose the potential for new record highs. On the downside, initial support is clustered around the current zone and the Bollinger middle band at $4,430, followed by the 100-day SMA at $4,370. A more pronounced correction could see prices extend lower toward the Bollinger lower band around $4,135, an area where dip-buying interest would typically be anticipated.