Gold Tumbles on Inflation Concerns Ahead of Jackson Hole

Gold prices slipped yesterday as investors weighed the impact of sticky US inflation and awaited remarks from Federal Reserve Chair Kevin Warsh at the annual Jackson Hole conference. The spot price of gold fell by 0.5% to $4,580.19 per ounce, retreating from Tuesday's peak of $4,696.18.

The move comes as futures markets suggest a moderate chance of an interest rate hike in September and at least one increase by December. According to CME FedWatch, the odds of a September rate hike stand at 33.7%, while the probability of at least one hike by December is 74.2%.

The expectation of higher policy rates often leads investors to expect higher real yields on bonds after inflation and a stronger US dollar. Both factors can increase the opportunity cost of holding gold, making it less attractive for investors. Inflation remains a concern, with the Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index, up 3.7% over the past 12 months through July.

The balance of risks favors Warsh striking a hawkish tone at Jackson Hole, which could keep gold from quickly retesting this week's highs even if pullbacks find buyers, according to StoneX, a commodities brokerage.