Wash-Jackson Hole Hawks As Gold Plunges Below $4,500, Facing A Major Nonfarm Roll Test This Week!
Walsh's keynote speech at the Jackson Hole Economic Symposium in Wyoming became the direct trigger for this round of gold price declines. He made it clear that if policymakers cannot be confident that core inflation is returning toward the 2% target, with clear progress and fast enough, then the Fed "still has work to do." This was his closest statement so far to admit that a rate hike may be necessary to ease price pressures. He emphasized that with the labor market stable, inflation still too high, and financial conditions showing little indication that policy rates are playing a restraining role, the Fed's current primary focus should be on prices.
This statement sharply contrasts with his previously cautious or even vague style. Wash pointed out that inflation progress over the past two years has been quite limited, with the Fed's favored Personal Consumption Expenditures price index rising 3.7% year-on-year as of July. Recent data does not show a significant improvement in the underlying trend, with about half of the items in the PCE goods and services basket still seeing annual gains above 3%. Wash confirmed that inflation has not significantly slowed, and the Fed "has work to do," which has dealt a heavy blow to gold. The CME FedWatch tool shows that investors believe the probability of a US rate hike in September jumped from about 36% before Wash's speech to
around 58%, and the probability of a December hike is as high as 89%. This sharp shift in expectations has directly pushed up expectations for real interest rates, and gold, as a non-yielding asset, naturally loses its appeal in a high interest rate environment Walsh's hawkish signals quickly spread to the foreign exchange and bond markets. The dollar rose to a more than one-week high, making dollar-denominated gold more expensive for holders of other currencies, further suppressing buying interest. Meanwhile, U.S. Treasury yields rose significantly. The yield on the rate-sensitive two-year Treasury rose nearly 12 basis points, reaching a more than one-month high; The ten-year Treasury yield also reached a one-week high. These interactions together form the core logic chain behind the decline in gold prices
On the geopolitical front, the latest developments in the US-Iran conflict have also suppressed gold prices. On Sunday, the US military launched an attack on missile silos on Iran's Larak Island, marking the first military strike on Iranian targets since late July; Iran subsequently launched ballistic missiles at US military bases in Jordan. Although most were intercepted, tensions have flared again. US crude oil prices rose nearly 3% at Monday's open, supporting inflation concerns and expectations of Federal Reserve rate hikes, further weighing on gold prices
Looking ahead to this week, market attention will be highly focused on the US August employment report, ISM PMI, JOLTS job openings data, and ADP employment data. If the labor market remains stable or strong while inflationary pressures persist, market pricing for rate hikes may be further revised upward; Conversely, it could provide some breathing room for gold prices.
Market Insight:
Overall, the core driver of this round of gold price adjustments is the repricing of Fed policy expectations, rather than fundamental deterioration in fundamentals. Walsh's remarks have indeed increased the likelihood of a rate hike. Gold is indeed under pressure in a high interest rate environment, but sticky inflation, geopolitical uncertainty, and long-term trends in central bank gold purchases continue to support prices in the medium to long term.
