Gold prices reversed course and turned higher in August after a steep decline, as diminished expectations of further U.S. interest rate increases and continued central-bank gold buying pushed prices up, analysts said.
December gold futures closed at $4,465.42 an ounce on the New York Mercantile Exchange, up 0.55% from the previous session, according to Investing.com on the 12th local time. That marks an 11.35% gain in just one month from $4,005 on the 13th of last month.
Gold had rallied to record highs early this year. Futures prices climbed as high as $5,318 based on the closing price in late January.
The mood shifted sharply afterward. On June 24, prices fell to $3,990, down about 25% from the peak. They then hovered around $4,000 through early this month without setting a clear direction.
Factors that dragged gold down included rising oil prices following the U.S.-Iran war and the prospect of Fed rate increases. Higher oil prices and rising long-term interest rates pushed up real rates, which weighed on gold even though the metal typically strengthens when geopolitical risk rises.
Prices were also pressured by strengthening expectations that the Fed would raise its benchmark rate further, as concerns spread that the Iran war could revive inflationary pressure.
The tone has shifted again recently. The biggest factor is U.S. employment and price data. U.S. employment figures released on the 7th came in well below market expectations, lowering the likelihood of further Fed rate increases.
U.S. nonfarm payrolls fell by 23,000 last month, a sharply weaker result than the market's expected gain of 80,000.
Inflationary pressure also appears to be easing. The U.S. Bureau of Labor Statistics said the same day that the July consumer price index (CPI) rose 3.4% from a year earlier. Year-over-year and month-over-month increases in both the headline and core CPI matched expert forecasts compiled by Dow Jones.
The U.S. consumer inflation rate fell from 4.2% in May to 3.5% in June, then eased further to 3.4% in July.
That has strengthened the view that the Fed may hold its benchmark rate at the current level and watch upcoming data rather than move to raise rates immediately.
The probability of a September rate increase reflected in the Chicago Mercantile Exchange's (CME) FedWatch tool has fallen to around 40% from the previous level of about 50%.
Central-bank demand for gold is also cited as a support for prices. The Bank of Korea has likewise begun expanding its gold-related exposure again. On the 3rd, the BOK announced a plan to build a partnership framework for purchasing domestically produced gold and said it had begun buying gold ETFs starting in the second quarter. It was the first time in 13 years that the BOK increased its gold exposure.
Some in the market say the recent roughly six-month correction in gold prices has set the stage for further gains.
Choi Ye-chan, a researcher at Sangsangin Securities, said the technical indicators had normalized through about six months of price and time consolidation, and that gold futures prices had broken above the downtrend resistance line, aided by an improving macro environment.
"Considering the historical statistical pattern in which prices recovered to about 90% of the previous high over 11 to 12 months after confirming a bottom in past downturns following record peaks, a rise to around $5,000 an ounce by year-end is possible," Choi said.
