Gold prices rose on Monday following a drop of more than 3% in the previous session, as investors reassessed the outlook for Federal Reserve interest rates in the wake of Chair Kevin Warsh’s hawkish remarks on inflation.
Rising oil prices have heightened concerns, though the broader fiscal backdrop that fueled gold’s August rally continues to provide some support.
Despite Friday’s sell-off, gold gained approximately 10% in August and is on track for its strongest monthly performance since January.
Warsh’s Stance on Inflation Revives Rate-Hike Bets
Gold fell 3.2% on Friday—its sharpest single-day decline since early June—after Warsh stated that the Federal Reserve still has work to do to bring inflation back to its 2% target.
His comments prompted investors to raise their expectations for another rate hike; markets now price in a roughly 57% probability of a September increase, according to CME’s FedWatch tool.
This shift puts pressure on the precious metal, as gold does not yield interest. When traders anticipate that rates will remain high, interest-bearing assets like government bonds become relatively more attractive.
The strengthening of the dollar following Warsh’s remarks also typically weighs on gold, as the metal becomes more expensive for buyers using other currencies.
ANZ analysts stated that the recent pullback reflects precisely this shift. They noted that gold dropped sharply after Warsh’s inflation warning boosted expectations for rate hikes later this year and dampened investor demand. Nevertheless, they expect the decline to remain limited, as the devaluation trade continues to attract buyers.
Pressure is also coming from energy markets. Brent crude rose to around $89.38 per barrel on Monday, while US oil reached $84.50, after US forces struck Iranian launchers on Larak Island on Sunday.
Iran subsequently attacked US forces stationed in Jordan—according to reports—heightening fears that the conflict could escalate and keep energy prices high.
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