Gold prices held steady on Thursday as traders paused for profit-taking ahead of Fed Chair Kevin Warsh's Friday speech at the Jackson Hole symposium. His tone on easing financial conditions is seen as the key swing factor for bullion's next move, with a Treasury debt-buyback plan also propping up prices.
Spot gold edged up 0.1% to $4,597.39 an ounce by 05:30 ET Thursday, while gold futures inched down 0.1% to $4,649.64 an ounce. Bullion is on track for a one-week rise of more than 1%, even as its rally has paused this week, likely on profit-taking ahead of the Jackson Hole event.
Warsh's tone is the key risk
The focus now shifts to Warsh's Friday appearance at Jackson Hole, though the Fed Chair has stressed he will not offer the kind of detailed forward guidance some of his predecessors gave. If Warsh doesn't address the recent easing in financial conditions, dovish repricing in near-term rate expectations could support another leg higher in gold. But if he signals concern that easier conditions threaten progress on inflation, markets may price in a more hawkish September meeting, pressuring gold.
Treasury buybacks fuel the "debasement trade"
Gold's August rally has also been supported by the Treasury Department's decision to double its planned buybacks of longer-dated debt last week, a move aimed at cooling debt-market ructions. ANZ said the buybacks and related fiscal-policy concerns have sustained the so-called debasement trade — investors buying gold as a hedge against the risk that persistent deficits and heavy borrowing weaken the dollar's purchasing power.
According to David Morrison, Senior Market Analyst at Trade Nation, gold has developed a "strong inverse relationship" with the US dollar, as a stronger greenback tends to make the metal less attractive to overseas buyers.
A hawkish surprise from Warsh, rather than the pause itself, is what would put real pressure on the metal.
Sources: Investinglive, Investing.com
Trading involves risk.
Risk Disclaimer
