Gold prices rose to their highest level in more than three months during trading on Monday, supported by a decline in the US dollar, while investors turned their attention to upcoming US inflation data and a speech by Federal Reserve Chairman Kevin Warsh later this week, looking for new signals on the path of interest rates.
Spot gold rose 0.8% to $4,641.27 an ounce, after hitting its highest level since May 15 during the session. The precious metal had gained more than 5% over the past week.
Gold futures in the United States rose 0.4% to $4,697.70 an ounce.
Gold's rise came as the volatile dollar approached multi-month lows amid market uncertainty following the US Treasury's pledge to increase its purchases of long-term government bonds. A weaker dollar enhances the appeal of dollar-denominated gold for investors holding other currencies.
The dollar and bond yields are supporting gold.
Tim Waterer, chief market analyst at KCM Trade, said gold started the week strongly and returned to demand, noting that its movements are mainly influenced by the weak dollar, along with investors trying to understand what rising bond yields might indicate about underlying economic pressures and uncertainty surrounding monetary policy.
This move comes after the US bond markets experienced strong volatility, following the US Treasury Department's announcement of its intention to increase long-term bond repurchases, which raised questions about the impact of this step on yields and the direction of fiscal and monetary policy.
Movements in Treasury bond yields are of particular importance to gold, as higher interest rates and yields increase the opportunity cost of holding the precious metal, which does not generate a periodic return, while lower yields can enhance its appeal as an alternative asset.
Conversely, a weaker dollar provides additional support for gold, as buying the dollar-denominated metal becomes less expensive for investors outside the United States, which could boost global demand for it.
Inflation data and Warsh's speech under scrutiny
Investors' attention this week is focused on the personal consumption expenditures price index data for July, one of the inflation indicators that receives considerable attention from the Federal Reserve when assessing the course of monetary policy.
Investors are also awaiting Federal Reserve Chairman Kevin Warsh's speech at the Jackson Hole symposium this week, looking for new clues about the central bank's direction on interest rates in the coming period.
Waterer said traders will be paying close attention to any change in Warsh's tone regarding the direction of monetary policy, and how that view aligns with recent developments in the bond market.
He added that adopting a balanced or cautious tone that leaves room for the Federal Reserve to move flexibly could preserve gold's chances of continuing its gains, especially if the statements reinforce investors' expectations of monetary policy easing.
Tensions with Iran add a new factor to the markets
On the geopolitical front, the United States has escalated its rhetoric against Iran, threatening what it described as the largest financial attack ever, while simultaneously preparing to launch a package of economic sanctions targeting Iran’s trading partners.
This move comes amid ongoing regional tensions, which add an element of uncertainty to global markets and may support demand for gold as a safe-haven asset during times of escalating geopolitical risks.
In contrast, oil prices fell by more than a dollar a barrel, as investors moved to take profits ahead of the expected announcement of new US sanctions on Iran and its trading partners.
Performance of other precious metals
As for other precious metals, spot silver settled at $68.98 an ounce, while platinum rose 0.1% to $1,878.88.
In contrast, palladium prices remained stable at $1,350 per ounce with little change.
Gold’s movements in the coming days will remain primarily linked to the path of the dollar and Treasury bond yields, along with US inflation data and Federal Reserve statements, factors that may determine whether the precious metal is able to build on its recent gains and continue its rise to new record levels.
