Gold prices fell sharply on Friday (Aug 30) as a stronger US dollar and rising US Treasury yields weighed on the precious metal. However, gold still managed to post a positive month, with a solid gain and a new record high hit earlier in August.
At the close of New York trading, spot gold was down $17.60 or 0.7% at $2,504.30 per ounce. Using the selling rate of VCB Bank, this is equivalent to VND 75.5 million per tael.
For the month of August, gold prices rose about 2%. Spot gold hit an all-time high of $2,531.60 per ounce on August 20. The main driver of gold’s rally this month has been the strong signal from the US Federal Reserve (Fed) about an interest rate cut in September.
According to the US Commerce Department’s report on August 30, the Personal Consumption Expenditures (PCE) Price Index rose 0.2% month-over-month and 2.5% year-over-year in July. These increases were in line with forecasts by economists in a Dow Jones poll. The core PCE index, which excludes the volatile food and energy sectors, rose 0.2% from the previous month.
PCE data is a key measure of inflation for the Fed’s monetary policy decisions. This report could be pivotal for the central bank’s meeting next month.
Allegiance Gold’s COO, Alex Abkarian, stated that the report confirms inflation is no longer the Fed’s primary concern, and their focus has shifted towards combating rising unemployment. This further solidifies the likelihood of a Fed rate cut in September.
Following the report’s release, investor expectations for the Fed’s September 18 meeting remained largely unchanged. Markets are still betting on a 100% chance of a rate cut at this meeting, with odds slightly favoring a 0.25 percentage point reduction at 67%, and a 0.5 percentage point cut at 33%.
The likelihood of a modest rate cut boosted the US dollar during this session. The Dollar Index rose 0.38% to close at 101.73. For the week, the index gained over 1% but posted a 1.43% loss for August, according to MarketWatch data.
Additionally, US Treasury yields climbed, with the 10-year yield rising 4.2 basis points to close at 3.909%.
A stronger US dollar and higher US Treasury yields both put downward pressure on gold prices.
Next week, investors will focus on the US non-farm payrolls report for August. Along with the PCE report, the jobs data is a crucial input that could influence the Fed’s interest rate decision in September.
“The data released next week will determine whether the Fed will cut rates by 0.5 or 0.25 percentage points at the upcoming meeting,” said Phillip Streible, chief strategist at Blue Line Futures.
Physical gold demand in Asia remained subdued this week, according to Reuters. The recent allocation of new gold import quotas by the People’s Bank of China (PBOC) has not yet improved the country’s gold demand.
“Gold speculators are already near-maximum long. We also believe that bullish Shanghai gold bets are nearing record highs. Meanwhile, physical gold demand in China is relatively weak, and demand from Chinese gold ETFs is also soft,” said Daniel Ghali, a strategist at TD Securities.
Ghali added that the risk of a short-term gold price decline is rising significantly, given the overstretched nature of bullish gold bets.
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