Gold Prices Rise on Supportive Fundamentals, But Technical Test Looms

The gold price has rebounded strongly in August, rising over 9% during the month. However, an expert warns that while fundamentals are looking supportive, a key technical test is yet to come.

According to the CME FedWatch tool, the odds of a September rate hike have fallen below 40%, which is significant for gold investors. Expectations of further tightening had boosted yields and the US dollar, while undermining demand from rate-sensitive Western investors.

However, recent inflation and labor data have strengthened the case for a pause in interest rates, although policymakers are still constrained by high headline inflation at 3.4% above last year's levels and 1.4% above the Fed's target.

Despite this, gold's fundamentals remain supportive. Central banks and Asian buyers continued to accumulate gold during the correction, helping to absorb sales by Western money managers. The World Gold Council recorded around $3 billion of net inflows to physically backed gold exchange-traded funds, lifting their holdings to 4,068 tons.