Written by Antonio Di Giacomo, Senior Market Analyst at XS.com
Gold is posting a modest correction on Tuesday after reaching a more than three-month high and once again approaching the important $4,700-per-ounce level. XAU/USD later retreated toward the $4,605 area, mainly due to profit-taking after strong gains over the past several sessions. At the same time, the U.S. dollar is attempting to stabilize after accumulating significant losses recently.
The correction follows a particularly strong August, when the precious metal recovered rapidly after briefly falling below $4,000 per ounce. From those levels, gold staged a solid rebound that took it back toward multi-month highs, supported by U.S. dollar weakness, uncertainty in the bond market, and increased investor demand for safe-haven assets.
One of the main factors behind this recovery continues to be developments in the U.S. debt market. The U.S. Treasury Department announced that it will double its buybacks of longer-dated government bonds, from approximately $2 billion to at least $4 billion per operation, particularly for maturities between 10 and 30 years. The measure will take effect in September and aims to improve liquidity at a time of significant pressure on long-term yields.
Although the announcement initially helped lower bond yields, the effect has been limited, and long-term rates remain elevated. The U.S. 10-year Treasury yield is hovering around 4.7%, while the 30-year yield is near 5.2%, reflecting persistent concerns about inflation, the fiscal deficit, and rising U.S. debt. These concerns have reinforced the so-called “debasement trade,” increasing gold’s appeal as a store of value against a potential loss of purchasing power in the U.S. dollar.
Market attention is now focused on the U.S. Personal Consumption Expenditures (PCE) Price Index, which will be released on Wednesday. As one of the Federal Reserve’s most closely watched inflation indicators, any surprise could trigger significant moves in both the U.S. dollar and bond yields. Higher-than-expected inflation could strengthen expectations for a more restrictive monetary policy stance and temporarily pressure gold, while a softer reading could support another recovery.
Another major event this week will be Kevin Warsh’s first speech as Federal Reserve Chair at the Jackson Hole Symposium, scheduled for Friday. Investors will look for clues regarding the path of interest rates and the central bank’s strategy for controlling inflation, which remains a significant challenge. Expectations for a September rate hike have recently moderated, meaning any shift in Warsh’s tone could substantially reprice monetary policy expectations and generate volatility in gold.
Geopolitical tensions also continue to provide support for the precious metal. New U.S. sanctions against Iran and warnings of possible retaliation from Tehran are keeping uncertainty elevated in the Middle East. Although oil prices have pulled back from their recent highs, they remain elevated compared with levels seen before the conflict escalated, keeping the risk of renewed energy-related inflationary pressures in focus.
Adding to this backdrop are trade tensions between the United States and Canada, representing another source of uncertainty for international markets. The combination of trade and geopolitical risks, along with concerns over U.S. public finances and bond-yield behavior, continues to support demand for safe-haven assets. However, following the recent strong advance, gold could go through periods of consolidation and increased volatility before establishing its next major move.
From a technical perspective, the recent correction does not yet appear to have damaged gold’s bullish structure. The decline from recent highs remains, for now, a pullback within the strong recovery observed during August, meaning that further declines could continue to attract buying interest. On the upside, the $4,700 region represents immediate resistance, and a sustained break above this level could reopen the path toward $4,800, followed by the important $4,900-$5,000-per-ounce area.
In conclusion, gold’s pullback after approaching $4,700 per ounce appears to be driven primarily by profit-taking following the strong recovery in August, when the metal moved from briefly trading below $4,000 to reaching a more than three-month high. Treasury bond buybacks, fiscal concerns, geopolitical uncertainty, and relative U.S. dollar weakness continue to provide support for the precious metal. However, the U.S. PCE report and Kevin Warsh’s speech at Jackson Hole will be key in determining the next move. A sustained break above $4,700 would reinforce the bullish outlook and could lead the market to target the $4,900-$5,000-per-ounce region gradually.
Zaid Barem / ymm
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