Gold drifts lower below $4,450 as hawkish Warsh remarks lift Fed hike bets
- Gold price declines to around $4,445 in Monday’s early Asian session.
- Fed’s Warsh warned the central bank still has ‘work to do’ on inflation.
- US military strikes Iranian rocket launchers in first attack in weeks.
Gold price (XAU/USD) attracts some sellers to near $4,445 during the early Asian trading hours on Monday. The precious metal edges lower on a surprisingly hawkish speech by Federal Reserve (Fed) Chairman Kevin Warsh at the Jackson Hole economic symposium.
The Fed Chairman warned on Friday that inflation is not slowing significantly and that unless policymakers become confident it is, the central bank has “work to do.” Traders raise their bets on a September rate hike following Warsh’s speech, marking the closest he has come to acknowledging interest rate hikes may be needed to ease price pressures.
Markets now see a 56.9% probability of a US rate hike in September, compared to 39.9% before Warsh’s comments, and an 88.7% odds of a December increase, according to the CME FedWatch tool. Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
“Gold is getting slapped hard as Chair Warsh affirms that inflation isn’t meaningfully slowing and the Fed has ‘work to do.’ While it may once again be ‘speak loudly and carry a short stick,' this will make the market price the September meeting as a coin flip,” independent analyst Tai Wong said.
Meanwhile, ongoing tensions in the Middle East could raise oil-driven inflation concerns, weighing on the yellow metal. Bloomberg reported on Sunday that the US military struck Iranian rocket launchers that were preparing to send mines into the Strait of Hormuz, following weeks of relative calm. The attack by the US was the first military action against Iran in more than a month, as US President Donald Trump has switched to a campaign to squeeze Tehran’s economy.
Gold sentiment seen resilient even if Fed tone turns more hawkish
According to TD Securities, a shift in tone from Fed Chair Warsh could test the recent optimism in precious metals, but is unlikely to fully derail it. The bank argues that “a more hawkish tone from Fed Chair Warsh would be a catalyst for some reversal in the yellow metal,” yet stresses that “the bar is likely high to reverse the improved sentiment in precious metals,” with positioning and underlying narratives still broadly supportive.
Warsh flags unfinished inflation work as financial conditions stay loose
Fed Chair Warsh delivered a notably more hawkish-leaning message, with an FXS Speechtracker score of 7.4 versus a 6.5 historical average, underscoring that the Fed must be confident underlying inflation is moving to target or “we have work to do.” Warsh highlighted healthy consumer spending, stable labor markets, and rapid business investment alongside “hard-pressed” characterizations of financial conditions as restrictive, while stressing that better summer inflation prints do not yet signal a meaningful shift in underlying trends and that the predominant focus must remain on prices. The emphasis on a firm 2% PCE target, durable-yet-fragile inflation expectations, and limited signs of policy restraint in credit and loan markets reinforces a bias toward keeping policy tight for longer, a backdrop typically supportive of the Dollar against lower-yielding peers.
The FXS Fed Sentiment Index was unchanged on the day, moving 0.00 points to hold at a still-elevated 129.70, firmly in hawkish territory despite the lack of incremental shift. The combination of a stable but high index reading and an above-baseline FXS Speechtracker score signals that Fed communication continues to lean hawkish overall, maintaining support for the Dollar while keeping markets sensitive to incoming inflation data and expectations.
Technical Analysis: Gold price is well-supported above the 100-day SMA
In the daily chart, XAU/USD holds a bullish near-term bias as price remains above both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, suggesting a well-supported uptrend despite the recent consolidation. The Relative Strength Index (RSI) at 54 keeps momentum in mildly positive territory, hinting that buyers still have the upper hand but without overbought conditions.
On the topside, immediate resistance emerges at the 20-day Bollinger upper band near $4,725, where a sustained break would open the way to fresh record highs. On the downside, initial support is seen around the current area and the Bollinger middle band at $4,430, followed by the 100-day SMA at $4,370; a deeper pullback could extend toward the Bollinger lower band at $4,135, where buyers would be expected to reappear.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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