Investing.com — on Friday slipped about 3%, as the strengthened after Federal Reserve Chair Kevin Warsh’s first Jackson Hole speech was seen as hawkish, prompting traders to increase their expectations for a central bank rate hike in September.
Bullion was also set for a weekly loss amid a nearly 1% advance in the dollar, taking a breather after soaring the previous week. That rally had been driven by the so-called debasement trade amid a steep sell-off in U.S. Treasury bonds.
At 16:00 ET (20:00 GMT), declined 3.2% to $4,456.20/oz, while gold futures lost 3.4% to $4,506.66/oz. The former was down 3.2% for the week, while the latter had slipped 3.8%. Get premium commodity market insights with InvestingPro — at 55% off now
Warsh’s speech brings September rate hike back on the table
The Fed’s chief’s much-awaited keynote address at the annual Jackson Hole Economic Policy Symposium saw him touch upon topics ranging from artificial intelligence to forward guidance to a summary of current economic conditions. Notably, he said underlying inflation trends in the U.S. had not “meaningfully improved” and reasserted that the central bank’s focus should be on delivering price stability.
Warsh’s speech came at a complicated time for the Fed. Sticky inflation data recently, elevated oil prices amid a seemingly never-ending conflict between the U.S. and Iran, and a surprisingly weak read on nonfarm payrolls have led to ructions in the Federal Open Market Committee (FOMC), with three regional presidents dissenting with July’s move to hold interest rates steady.
“As of now, I believe the labor markets are consistent with full employment. But on the price-stability side of our mandate, the numbers are more concerning,” Warsh said in prepared remarks.
The keynote address was perceived as hawkish, with traders raising their expectations for a quarter-point hike by the FOMC in September. As per the CME FedWatch tool, the odds of such a hike now stood at more than 57%, up from about 35% the previous day.
Meanwhile, U.S. Treasury yields turned higher after Warsh’s speech, as bonds were dumped. The was last up 5.3 basis points to 4.725%, while the more rate-sensitive 2-year yield climbed 12 basis points to 4.352%. The bond market has been on a roller coaster recently, with longer-term maturities gripped in a sell-off driven by inflation jitters, corporate debt issuance concerns, and worries over the ballooning U.S. national debt.
A surprise intervention move by the Treasury Department last week has had little effect to cap yields.
“Chair Warsh reiterated the Federal Reserve’s inflation focus during his inaugural Jackson Hole symposium presentation this morning, resulting in a hawkish reprice across the yield curve,” José Torres, senior economist at Interactive Brokers, said.
“Still, the monetary policy leader was relatively quiet about the timing of the committee’s next move, and his success in striking a delicate balance between prioritizing cost forces and avoiding a direct commitment to a rate increase sparked rallies in stocks, the greenback and duration,” he said.
“This morning’s presentation was hawkish but tolerable, as investor anxieties over the past few weeks have stemmed from rising long-end yields, not a potential rate increase,” Torres added.
The bond sell-off last week had resulted in a rally in gold prices last week, even though climbing bond yields generally act like interest rate hikes as they drive up borrowing costs for consumers and businesses, making non-yielding assets such as bullion unattractive. But news that U.S. debt had crossed $40 trillion caused fiscal skepticism, and in such an environment investors looked to move capital out of fiat currencies and into hard assets such as gold or cryptocurrency – a strategy known as the debasement trade.
Vahid Karaahmetovic, Ayushman Ojha, and Jaiveer Shekhawat contributed to this article