Gold Rebounds on Rate Hike Expectations and Dollar Weakness
Gold prices have seen a notable rebound in July and August, rising to around $4,400 per ounce at the time of writing. This represents a 12% swing from the year-to-date low of $3,943 per ounce formed on June 30.
The recent rally can be attributed to several factors, with one primary driver being the pullback in Federal Reserve rate hike expectations. Earlier in the year, concerns over inflation and elevated oil prices fueled expectations of further monetary tightening under the new Fed chairman Kevin Warsh, who emphasized the need to uphold the Fed's price stability mandate.
However, the release of softer US economic data, including a surprise reading on non-farm payrolls and revised employment figures for May and June, quickly pared back expectations for a September rate increase. This boosted gold's appeal as a non-yielding asset.
Additionally, the return of Western investment demand helped prop up gold prices, with global physically-backed gold exchange-traded funds (ETFs) attracting $3 billion in net inflows during July. The US-Japan intervention episode at the end of July also put downward pressure on the US dollar index, making bullion cheaper for holders of other currencies and driving up international demand.
From a technical perspective, gold is likely to pull back after retesting the resistance area of a downtrend channel that has formed since January. The $4,400-$4,500 per ounce area also coincides with the 200-day simple moving average (SMA), which gold broke down in early June.