Gold's August rally toward $4,700 an ounce was driven mainly by investment demand rather than the U.S. Treasury's bond buyback plan, according to World Gold Council analyst Krishan Gopaul. A rate-driven bounce this week pushed spot prices back above $4,450 as Federal Reserve remarks shifted September rate-hike odds, while a weaker dollar lifted gold-linked currencies such as the South African rand.
Spot gold rallied close to $4,700 an ounce in August, its highest since mid-May, and the move was driven primarily by investment flows rather than a single catalyst, according to Krishan Gopaul, senior analyst for EMEA at the World Gold Council.
Gopaul cautioned against crediting the U.S. Treasury's decision to expand its bond buybacks for the surge. The buyback announcement, which came late in the month, likely accelerated an existing trend rather than creating a new one, he said, against a backdrop of debt concerns in the U.S. and elsewhere.
Investment demand has strengthened since July, according to Gopaul. Global physically backed gold ETFs recorded $3 billion of net inflows that month, reversing two straight months of outflows, followed by a further $17 billion in August. Both China and India have shown clearer improvement in investment demand, he added.
The latest leg of the rally appears to have been led primarily by futures positioning and gold-backed ETF inflows rather than a sudden jump in retail physical demand, Gopaul said, though physical consumer demand likely provided support at the margin. He characterized central bank buying as an important pillar of the market rather than the trigger for the latest rise. According to Gopaul: "an important underlying pillar of the market rather than the principal catalyst"
Rate expectations whipsaw the rebound
Gold futures traded at $4,526.20 on Thursday, up $111.60, or 2.53%, against Wednesday's $4,414.60 settle, while spot XAU/USD pushed back above $4,450 after bouncing from a three-week low of $4,282.67.
Federal Reserve Governor Christopher Waller said Thursday that underlying inflation is doing better than the core numbers suggest and that he would favor holding rates steady in September if the August CPI print shows continued progress toward the 2% target. CME FedWatch September hike odds fell to 48% from nearly 70% one day earlier, and the two-year Treasury yield dropped six basis points to 4.33%.
A softer dollar lifts gold-linked currencies
The South African rand also gained as the dollar weakened and gold prices climbed, with traders looking ahead to Friday's U.S. employment data for signals on Federal Reserve policy. The rand traded at 16.0075 per dollar, up about 0.3% from its prior close, while the U.S. dollar index fell 0.6% against a basket of currencies.
South Africa's benchmark 2035 government bond also gained ground, moving in line with rising gold prices, with its yield dropping 7 basis points to 8.58%. On the Johannesburg Stock Exchange, the Top-40 index rose 1.4%, with Impala Platinum and MTN Group among the session's largest gainers.
Gopaul said conditions remain supportive for gold, though uncertainty and volatility are likely to affect the wider market for the rest of the year. Further weakness in the dollar index, renewed downward pressure on real yields, continued ETF inflows or an escalation in fiscal and geopolitical risk would be supportive for gold, he said, while a renewed rise in long-dated real yields, a stronger dollar or a more hawkish-than-expected Fed would present near-term headwinds.
Sources: Commodities & Futures News, Commodities Analysis & Opinion, Forex News
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