Gold Soars to $4,409 on Unlikely September Rate Hike
Gold prices surged to $4,409 on Monday as five key developments pointed toward a September rate hike becoming increasingly unlikely. Goldman Sachs chief economist Jan Hatzius published a note calling the September Federal Reserve rate hike 'extremely unlikely' after three softer-than-expected data prints: July consumer prices came in tame, retail sales fell 0.6%, the first monthly decline in eight months, and consumer sentiment dropped 8% in August.
The real-yield mechanism explains gold's response to falling rate-hike odds: gold earns no interest, so when rates are expected to rise less often, real yields compress, and the opportunity cost of holding gold falls. This is evident in gold's current price at $4,409.
Wednesday's FOMC minutes will reveal how close the internal debate was within the Fed regarding the July 28-29 policy meeting, where rates were kept between 3.50% and 3.75%. A dovish tone would support gold toward $4,500, while a hawkish tone would do the opposite.
Silver outperformed gold today, up 1.54%, as the gap in their prices narrowed to approximately 67 from 69 three weeks ago, signaling silver is closing its monetary discount to gold. However, this distinction matters because monetary bids can reverse quickly, whereas industrial deficits cannot.