Since August 7, the price of gold has hit its lowest level before rebounding to around $4,331 per ounce. The conflict between the United States and Iran could not support the safe haven. It increased the price of oil, consolidated fears of inflation and increased the probability of a rise in American rates. The evolution of the dollar and bond yields then weighs more on the precious metal than the search for security.
In brief
- Gold rebounded by more than 1%, supported by the decline in the dollar and US yields.
- The yellow metal remains under pressure after hitting its lowest level since August 7.
- The rise in oil fuels fears of inflation amid tensions between the United States and Iran.
- Expectations of Fed rate hikes are weighing on gold, which is not generating any yield.
- The next data on American employment will be decisive for rate expectations and the evolution of gold.
Gold continues a fourth session of decline
Gold rose around $4,330.79 per ounce on September 2 after reaching its lowest level in more than three weeks. Indeed, the precious metal was heading towards a fourth consecutive session of decline.
US futures for December delivery lost 0.4% to $4,377.90. Thus, the spot price also remained below the 200-day moving average, located around $4,528. It had fallen below this threshold on August 28.
Different indicators from on-chain analysis explain the current pressure:
- Gold hit its lowest level since August 7;
- Its spot price was around $4,331 per ounce;
- December contracts fell to $4,377.90;
- The probability of a US rate hike was around 68%.
At the same time, the dollar reached its highest level in two weeks. This progression revalues gold for buyers who use other currencies, because the yellow metal is generally quoted in dollars.
The decline has not affected all precious metals evenly. With this in mind, silver gained 0.1% to $64.35 per ounce, while platinum lost 0.4% to $1734.06. Palladium increased its share by 0.6% to $1,319.12.
The rise in oil transforms the crisis into an inflationary risk
The United States and Iran held their largest exchange of fire since July. This new escalation pushed oil prices to their highest level in almost a month.
Geopolitical tensions usually provide support to gold, considered a value of refusal. If the conflict directly threatens energy supplies, the mechanism may work differently. Rising oil prices can fuel inflation, lead central banks to tighten policy and increase bond yields.
Nikos Tzabouras, senior analyst at Tradu.com, explains: “persistent geopolitical uncertainty is pushing up oil, fueling inflationary risks and pushing the Fed to raise rates.”
This transmission channel is also favorable for the dollar. Investors are chasing the U.S. currency as the prospect of higher rates boosts its relative yield. Both of these moves diminish the automatic appeal of gold.
Thus, the yellow metal remains tossed between two forces. Concerns about public debt and the loss of currency values maintain its demand in the long term. In the short term, the planned tightening of the Federal Reserve increases its opportunity cost.
The probability of a rate hike approaches 70%
Markets now give a 68% chance of a rate hike at the September meeting, according to the CME FedWatch. This projection has evolved significantly after the latest statements by Fed officials.
Michael Barr, governor of the US central bank, said an increase could become necessary if inflation did not slow down quickly. Kevins Warsh had already adopted a similar posture at Jackson Hole. The Chairman of the Federal Reserve recalled that PCE inflation was around 3.7% over twelve months, well above the 2% target.
Gold holders do not receive any interest. As soon as bond yields increase, investors therefore favor assets that offer constant income. This mechanism justifies why geopolitical tensions were not enough to support the metal during this week.
The next US employment data would certainly modify these expectations. Thus, the ADP report and non-agricultural job creations could make it possible to estimate the solidity of the economy before the meeting of September 15 and 16.
Strong figures would consolidate the scenario of a rate hike and prolong the pressure on gold. A significant slowdown in the labor market would, on the contrary, reduce this probability and provide support for the precious metal.
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