Gold Rebounds but Upside Limited by Hawkish Fed Expectations
Gold prices rebounded on Friday, recovering most of its losses from the previous day. The US Dollar's pullback in value, a decrease in US Treasury yields, and lower Oil prices all contributed to the gold price increase.
The precious metal had fallen nearly 2% on Thursday due to rising Oil prices that fueled inflation concerns and drove up US Treasury yields to multi-year highs. However, despite the latest US CPI data indicating increased expectations of a Federal Reserve interest rate hike next week, gold managed to regain some ground.
The US Consumer Price Index (CPI) report showed headline inflation rose 0.4% month-over-month in August, matching forecasts but accelerating from July's 0.1% increase. The annual rate remained steady at 3.4%, in line with market expectations.
TD Securities stated that the yellow metal has been able to hold support in the higher range despite renewed energy upside and increased Fed hike probabilities. They argue that strong data and a hawkish Federal Reserve may only catalyze modest near-term selling, postponing the timing of the next leg higher rather than leading to material downside.