Fundamental Analysis

Gold Surges to Highest Levels Since August 10th Amid Retreating Treasury Yields

  • Gold is on track for its best week in six weeks.
  • Claims for US unemployment benefits pointed towards a resilient job market.
  • Investors eagerly await clarity on potential future rate hikes and the duration of elevated rates.

On Thursday, gold surged to new highs before declining as the US dollar strengthened. The metal was on track for its best week in six weeks. Meanwhile, investors awaited a speech by Federal Reserve Chair Jerome Powell that might provide insights into the future of interest rates.

US jobless claims (Source: US Labor Department)

US jobless claims (Source: US Labor Department)

Earlier data on Thursday indicated that claims for US unemployment benefits pointed towards a resilient job market. This news potentially supports the Federal Reserve’s stance of maintaining higher interest rates for an extended period. The report caused a slight increase in Treasury yields, hurting gold

Investors also considered remarks from Philadelphia Fed President Patrick Harker, who mentioned in a CNBC interview that the Fed would likely need to sustain restrictive rates for some time. 

The Federal Reserve has gradually raised rates since March 2022 to curb inflation. In the previous month’s policy meeting, the Fed raised its key overnight interest rate to fall within the range of 5.25% to 5.50%. Despite acknowledging the moderation of inflation, Fed officials maintain their stance that inflation remains excessively high. 

This inflation moderation, however, has paved the way for the possibility of ending the cycle of rate hikes. Financial markets are skeptical that the US central bank will implement another rate increase during its September 19-20 meeting.

Moreover, Fed officials cautiously welcomed a recent surge in bond market yields. They expressed the view that there’s a significant likelihood that further interest rate hikes might not be necessary.

Gold experienced a 1.3% rise during the week, which could mark its first weekly gain this month. This increase came as US Treasury yields retreated, pushing gold prices to their highest since August 10th.

Investors are anticipating insights from Powell and European Central Bank President Christine Lagarde, who are scheduled to speak at the yearly economic symposium in Jackson Hole, Wyoming. Matt Simpson, a senior analyst at City Index, mentioned that while gold had seen a positive rally, Powell’s speech could potentially reverse this trend.

The strength of the US dollar remains a key factor affecting gold, with the dollar heading for its sixth consecutive weekly gain. This increase makes gold more costly for international buyers.