Gold price drops as Warsh warns Fed still has ‘work to do’ on inflation

Gold prices plummeted on Friday, plummeting over 3% at one point, after Federal Reserve Chairman Kevin Warsh warned during his debut at the Jackson Hole symposium that inflation remains stubbornly high and the central bank still has "work to do" to tame it. The Comex gold contract for December delivery plummeted as much as 3.2% to $4,515.30 per ounce in New York, a swing of $173 from its overnight high of $4,688.

By early afternoon, the most active contract traded at $4,535.90, down 2.7% for the day, on track for the worst session in six weeks.

Warsh, in his first major address since taking over the Fed in May, declared the 2% inflation target a "firm and fixed" goal, stating that short-term interest rates remain the primary tool for achieving the Fed's mandate. The dollar surged on the comments, hinting at a probable September rate hike. Markets priced roughly one-in-three odds of an increase next month, as higher rates typically hurt gold, which pays no interest.

Warsh also criticized the Treasury's surprise intervention in the bond market, arguing that "unconventional policies to spur economic activity may suit genuine crises but should otherwise be used sparingly, if at all." The pullback occurred in the final days of a record-breaking month for gold. Comex-backed ETFs added the most gold since January, with the December contract trading above $4,700 earlier this week, its strongest level since mid-May.

Even after Friday's decline, gold is on track to finish August up about 11%, its best month since January. Nevertheless, gold remains roughly 16% below its all-time high set in late January.

Silver, on the other hand, bore the brunt of the drop, with Comex silver for December delivery plummeting 4.1% to $67.34 per ounce, erasing a week of gains and leaving the metal 45% below its January record. Even though an ounce of gold buys about 67 ounces of silver, silver is still on track for a 16% gain in August, and its 71% gain over the past year remains the best among precious metals.