Gold retreated from a three-month high, with investors turning their focus to the Federal Reserve's interest-rate path ahead of the annual Jackson Hole gathering this week.
Bullion slumped to trade near $4,600 an ounce after a report showed US inflation remains well above the Fed's target. The dollar jumped and US bond yields edged higher Wednesday following the print, as traders bolstered bets that the central bank will start hiking borrowing costs by year end. Higher interest rates typically reduce the appeal of non-yielding gold.
Still, the precious metal is up 14% this month following the US Treasury's unexpected intervention in the bond market last week. The efforts to control the cost of the US debt pile have revived interest in the so-called debasement trade that helped power gold's record-breaking rally last year, when investors bought the metal as a hedge to protect themselves from runaway budget deficits and a weaker dollar.
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Gold's marked rebound in recent weeks has also taken the metal above the 200-day moving average that's often viewed as an important measure of momentum. In a sign of wider investor participation, bullion-backed exchange-traded funds tracked by Bloomberg added more than 28 tons last week, the most since January.
“Precious metals are finding comfort in this higher range,” TD Securities analysts Ryan McKay and Bart Melek wrote in a note, while pointing to limited short-term upside due to elevated energy prices and persistent inflation risks. “We caution this rally may be too early for a renewed run back to record highs,” they said.
Investors will be seeking clues to the Fed's approach to inflation when Kevin Warsh makes his first major speech as chairman of the central bank on Friday. The much-anticipated address at the Jackson Hole symposium offers Warsh an opportunity to counter criticism that he hasn't been forthright with his views on the economy.
Fed Bank of Boston President Susan Collins said she supported holding interest rates steady for now, provided progress is seen in bringing inflation back toward the central bank's 2% target.
Gold slumped 1.4% to $4,590.32 an ounce at 4:14 pm in New York. Silver was slipped to $68.06 an ounce. Platinum and palladium also fell. The Bloomberg Dollar Spot Index was up 0.2%.
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