Gold edged lower on Wednesday as traders digested a firmer-than-expected headline PCE inflation reading and looked ahead to Fed Chair Kevin Warsh's first Jackson Hole speech. The metal is on track to end a three-week winning streak, even as falling oil prices offered some support. A separate analysis ties gold's next move to renewed stress in long-dated Treasury yields.
Spot gold fell 0.9% to $4,619.53 an ounce. Gold futures ticked down 0.4% to $4,674.51 an ounce. The pullback puts the metal on track to end a three-week winning streak, though a drop in oil prices below $90 a barrel has cushioned the decline. Lower oil matters for gold because energy costs feed into inflation, and if crude rises sharply the Fed may face more pressure to keep rates elevated, which weighs on bullion since it pays no interest.
PCE data keeps inflation pressure alive
The Commerce Department's Bureau of Economic Analysis showed overall PCE rose 0.2%, compared with a 0.1% decline in June. That pushed the annualized PCE index to 3.7%, in line with the prior month and faster than forecasts of 3.6%. Core PCE, which excludes food and energy, stood at 0.2% month-on-month and 3.3% year-on-year, matching economists' projections.
Traders are now turning to Warsh's Jackson Hole address on Friday, his first as Fed chair. According to David Morrison, Senior Market Analyst at Trade Nation, these events "could provide the catalysts for the next big move" in gold. Warsh has stressed he does not want to lay out exact forward guidance on borrowing costs. Markets are pricing a roughly 60% chance the Fed leaves rates unchanged at 3.5% to 3.75% next month, against a 40% probability of a quarter-point move, according to CME FedWatch.
Treasury buybacks are back in focus
A separate analysis links gold's path to the long end of the Treasury curve. Before Treasury expanded its buyback program, the 30-year yield had reached roughly 5.34%. Treasury then doubled certain buyback operations in the 10-to-30-year sector from $2 billion to at least $4 billion, after which long yields eased, the dollar weakened and gold rallied.
The underlying pressure has not gone away, however. Durable goods orders rose 1.1% against expectations for 0.4%. Personal income increased 0.4% versus 0.2% expected. Second-quarter real consumer spending was revised to 3.4% from 3.2%. GDP growth stayed at 1.5%. If long yields climb again, Treasury would face the same pressure it confronted before the buyback expansion — only this time investors already know it is willing to step in.
Sources: Investing.com, Investing.com Analysis
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