Warsh's Hawkish Message Weighs on Gold Prices

Gold prices rebounded slightly on Monday after plummeting over 3% in the previous session, as investors reassessed the Federal Reserve's rate outlook following Chair Kevin Warsh's hawkish inflation message.

The sharp decline on Friday was the largest daily drop since early June, with gold falling 3.2%. However, despite the recent selloff, gold remains about 10% higher in August and is heading for its strongest monthly gain since January.

Warsh's comments have revived rate hike bets, with markets now pricing roughly a 57% probability of a September hike, according to CME's Fedwatch tool. This shift has weighed on bullion because gold does not pay interest, making it less attractive compared to interest-bearing assets such as government bonds.

The stronger dollar that followed Warsh's remarks also tends to pressure gold, making it more expensive for buyers using other currencies. ANZ analysts expect the downside to remain limited as the debasement trade continues to attract buyers, driven by concerns about rising government debt and declining purchasing power.