Gold Surges Past $4,300 as Rate-Hike Expectations Fall

The price of gold broke through the $4,300 mark in early August, and it's not just about geopolitical risk. According to a Reuters report on August 6, spot gold rose for a fourth consecutive session to its highest level since mid-June, reaching $4,285.84 per ounce.

While oil prices fell due to expectations of resumed navigation through the Strait of Hormuz, safe-haven assets like gold should have cooled off as well. But that didn't happen. Instead, the dollar and Treasury yields weakened in tandem, and market expectations for a further rate hike in September fell from 67% to 55%. This repricing of interest rates is key.

Gold's rise was not due to an increase in demand or tonnage, but rather a shift in the weighting of different demand components. The World Gold Council's Q2 data shows that total gold demand was roughly flat at 1,269 tonnes, while demand value hit a record $380 billion. This suggests that the expansion in demand value did not translate into proportional tonnage growth.

ETFs saw significant selling, but this doesn't mean the entire market lacked absorption. Central bank data should also be treated with caution, as the World Gold Council has revised down its official-sector purchase estimate for Q1 due to lags in reporting and statistics.