Gold Surges as Investors Price in Rate Hike, Dollar Index Hits Four-Month Low
The price of gold has surged to $4,388 per ounce on Wednesday, while the US dollar index hit its weakest level in four months at 98.6.
This unusual move is not due to investors fleeing risk, but rather betting that Federal Reserve Chair Kevin Warsh will follow through with a rate hike at next week's FOMC meeting, which now has odds of around 60% following his hawkish speech at Jackson Hole.
Warsh's shift in tone from a potential rate-cutter to a hawk is a surprise, as he was confirmed as Fed chair after a nomination seen as a bet on a rate-cutting, Trump-aligned Fed. His recent comments have been interpreted as a pre-commitment to tightening monetary policy, with inflation having run above the 2% target for 65 consecutive months.
The dollar index has fallen for three straight sessions due to investors pricing in institutional friction, particularly the public disagreement between Treasury Secretary Scott Bessent and Fed Chair Warsh over the pace of tightening. This rift is testing the confidence that markets have in the institutions running the US monetary policy.