Gold steadies near $4,600 after inflation setback as Warsh speech looms

Gold prices rose on Thursday, nearing the $4,600 mark per ounce as investors considered the Federal Reserve's strategy to combat persistent inflation before Chair Kevin Warsh's upcoming speech at the Jackson Hole symposium. The XAU/USD pair increased by 0.7% to $4,625.83, while Gold Futures climbed 0.6% to $4,680.50. Conversely, XAG/USD climbed 1.9% to $69.41 an ounce, and XPT/USD advanced 1% to $1,854.30.

The US Dollar Index remained unchanged at 99.12. Gold's upward trend followed a dip on Wednesday, which ended a five-day winning streak. The decline came after the release of U.S. inflation data indicating that price pressures were still well above the Federal Reserve's target. The Personal Consumption Expenditures price index increased 3.7% year-over-year, slightly above the 3.6% forecast.

This data caused the dollar to strengthen and Treasury yields to rise, both factors that typically put downward pressure on gold, as it is a non-interest-bearing asset priced in dollars.

Analysts noted that the downside risk for gold should remain limited due to the ongoing "debasement" trade, which attracts investors seeking protection against potential dollar weakness. Inflation data also highlighted the resilience of the U.S. economy, with second-quarter GDP growth remaining steady at 1.5%, personal income up 0.4% in July, and consumer spending flat.

The focus now shifts to Warsh's Jackson Hole speech, his first major address as Federal Reserve chair. Investors are eager to hear his plans for addressing inflation that has remained above the Fed's 2% goal for an extended period. Warsh is under pressure to provide clearer guidance following his departure from traditional forward guidance since assuming the role.

Furthermore, investors want him to discuss the relationship between monetary policy and the bond market, particularly in light of the recent Treasury intervention to buy longer-dated debt. Despite the recent setback, gold has remained about 14% higher this month, benefiting from Treasury intervention and maintaining a level above its 200-day moving average.

Gold-backed ETFs witnessed strong inflows during the rally, while central bank demand and concerns about the sustainability of U.S. fiscal policy continue to support gold's longer-term sentiment.