Gold Prices Soar on Weakening Dollar and Easing Inflation
Gold prices have rebounded sharply in August, rising over 7% so far this month and breaking above the $4,000 area that dominated trading for much of July. The price of gold in US dollars ended the week around $4,342 an ounce.
The sudden burst higher has lifted bullion well clear of the $4,000 area, although it remains 8% lower over three months. UBS analysts still see considerable upside over the next year and forecast a price of $5,200 by June 2027.
The backdrop for gold has become more favorable as US dollar strength appears to be losing momentum. Market confidence in Federal Reserve tightening is beginning to erode, which reduces the opportunity cost of holding bullion. A weaker dollar and lower US real yields make it less expensive to hold gold, while uncertainty over the Fed outlook can revive demand for defensive assets.
Recent US releases have pointed towards easing inflationary pressures and a softer labor market. Analysts at UBS say that this data does not look strong enough to force an imminent Federal Reserve hike.