Gold: Upside seen as Fed hike bets fade – Commerzbank

Commerzbank analyst Carsten Fritsch observes that gold has surged to its highest level since early June as investors lower expectations of additional Federal Reserve rate increases. He points to reduced expectations for further Fed rate hikes in Fed Funds futures, a diminished probability of a September hike, and growing ETF investments in gold. The metal's price reached as high as $4,450 per troy ounce, its peak since early June, marking a 10% increase since the start of the month.

The shift in expectations has resulted in a year-end Fed rate target of 3.86% from 4% at the end of July, indicating a reduction of 14 basis points in anticipated rate hikes. Despite a slight decline from $4,450 to $4,320 per troy ounce, the gold price appears to have further upside potential. This is supported by renewed buying interest from ETF investors, with purchases of gold increasing over the past six trading days, the longest uninterrupted inflow since April, totaling nearly 21 tons.

The positive outlook for gold is further bolstered by actual July inflation data, which met expectations with a 0.1% monthly increase in headline CPI and a 0.2% increase excluding food and energy. However, annual headline inflation remains at 3.4%, indicating stagnant wage earners' spending power and core inflation slightly above the 2% target.