Gold prices fell by nearly $20 per ounce in global markets on Wednesday. The decline came after gold reached its highest level in three months during Tuesday’s trading session.
An ounce of gold traded near $4,640 after Asian markets opened. On Tuesday, gold reached its highest level since mid-May. The latest rally followed a strong increase last week after the US Treasury announced plans to buy government bonds.
Investors are now watching key US inflation data. The figures could provide new clues about the Federal Reserve’s interest-rate decisions in the coming months.
The US Personal Consumption Expenditures (PCE) index for July will be released at 3:30 p.m. Erbil time on Wednesday. The Federal Reserve closely follows the PCE index when assessing inflation.
Meanwhile, investors are also waiting for Kevin Warsh’s speech at the Jackson Hole symposium on Friday. His comments could influence expectations for US monetary policy.
Wael Makarem, chief financial markets strategist at Exness, said lower-than-expected inflation would create a favorable environment for gold. A softer message from Warsh could also strengthen expectations for lower real interest rates.
Such expectations could reduce the cost of holding gold. Unlike interest-bearing assets, gold does not generate regular interest income. Therefore, lower interest rates often make gold more attractive to investors.
Makarem also warned that declining confidence in US fiscal stability could support gold prices. He pointed to the Treasury Department’s plans to purchase government bonds as another factor affecting market sentiment.
Earlier this month, US data showed an unexpected decline in job openings. The figures reduced expectations for an interest-rate hike in September.
According to the CME FedWatch tool, traders currently see a 63.6% chance that the Federal Reserve will keep interest rates unchanged next month.
Meanwhile, developments involving Iran and Oman have also affected global markets. Iran has reportedly resumed talks with Oman over managing the Strait of Hormuz. The developments have contributed to lower oil prices.
IMF Managing Director Kristalina Georgieva said the global economy has handled the energy shock involving Iran and the United States better than expected. However, she warned about worsening fiscal conditions in some countries.
