Gold steadies as investors await Warsh’s Jackson Hole address

Gold prices remained stable on Thursday as investors awaited Federal Reserve Chair Kevin Warsh's anticipated address at the Jackson Hole symposium. By 05:30 ET, spot gold had risen 0.1% to $4,597.39 an ounce, while gold futures saw a slight decline of 0.1% to $4,649.64 an ounce. The precious metal continues to trend higher, with a weekly gain of over 1%, driven by expectations that the Fed might maintain interest rates steady during the September meeting instead of reacting to energy-induced inflation with another rate hike.

Recent dips in oil prices have eased some inflation concerns and heightened optimism about a Middle East diplomatic resolution and the potential reopening of the Strait of Hormuz. However, the Federal Reserve's favored inflation gauge still indicates ongoing price pressures. Analysts have pointed out that even if the Fed holds rates steady in September, investors anticipate additional tightening measures later in the year. Rising interest rates can curb inflation but may also cool economic activity.

For gold, an extended period of higher rates poses a challenge as the metal has a strong inverse relationship with the U.S. dollar. A stronger dollar makes gold pricier for buyers using other currencies, potentially reducing demand. The focus of investor attention is now on Warsh's Jackson Hole speech, his first major address since assuming the role of Federal Reserve chair.

Markets are eager for clarity on his approach to inflation, which has remained above the Fed's 2% target for an extended period. Warsh is also expected to be questioned about his shift away from traditional forward guidance and the connection between monetary policy and the bond market, especially following the U.S. Treasury's recent decision to double its planned purchases of longer-dated government debt.

This theme of government deficits and borrowing has contributed to the debasement trade, with investors continuing to buy gold as protection against the potential weakening of the dollar due to persistent government debts and policies aimed at controlling long-term yields. Despite a decline in gold prices on Wednesday, the metal has remained around 14% higher this month, bolstered by the recent Treasury intervention and its trading above the important 200-day moving average, a technical indicator of longer-term market strength.

Gold-backed exchange-traded funds have seen strong inflows during this rally, and central bank buying, along with concerns about the sustainability of U.S. fiscal policy, continue to support the longer-term outlook for gold.