Gold Price Rally Reversed Amid Fed Hawkishness, $5,000 Target Still in Sight

State Street Global Advisors observed a significant shift in market expectations regarding interest rate hikes. In mid-August, the probability of a September rate hike was less than 30%, but by August 31, it had risen to about 67%. Rising policy rates can make holding non-yielding assets more expensive and may pressure gold prices.

Spot gold prices surged by 9.7% in August, their largest single-month increase since January this year. However, the rally was reversed after Federal Reserve chair Walsh made hawkish comments at the Jackson Hole Global Central Banking Annual Meeting.

State Street notes that despite the recent slowdown in gold price gains, the structural drivers supporting gold allocation remain solid. These include high government debt levels, inflation above target, increasing term premiums for long-term bonds, continued central bank accumulation of gold, and high stock-bond correlation.