The Fed's monetary policy remains aggressive, putting pressure on gold following the long-anticipated speech by Fed chairman Jerome Powell at the central bank symposium in Jackson Hole, Wyoming. Powell reiterated that interest rates hikes must continue as inflation remains the biggest threat to the economy.
However, some analysts believe that falling inflationary pressure could prompt markets to price in less aggressive moves from the Federal Reserve, which would weaken the US dollar and give support to gold.
According to the data released by the US Commerce Department on Friday, its core Personal Consumption Expenditures Index (PCE) increased by 4.6% in July, down from June's annual increase of 4.8%.
The CME FedWatch Tool is showing that markets are currently split 50/50 on whether the Federal Reserve would increase interest rates by 50 or 75 basis points in September.
A weekly survey by Kitco indicates that Wall Street is largely mixed on gold. Out of 16 surveyed experts, 6 (38%) were bullish, 6 were bearish, and 4 (25%) were neutral.
Retail investors were more optimistic, with 53% of respondents seeing gold prices rise. 27% expected gold to drop, while 20% were neutral. In total, 561 votes were cast.
Although market sentiment doesn't create a clear path for gold, US interest rates remain the most important factor for the precious metal. If inflation continues to decline, the Federal Reserve will begin to slow down the pace of interest rates hikes.
Falling gold prices at the end of last week have led to mixed sentiment in the market.
Colin Cieszynski, chief market strategist at SIA Wealth Management Inc, said he is bullish on gold next week as Powell's comments didn't add anything new to the current outlook.
"He didn't really say much that was new and noteworthy enough to push treasury yields or USD higher in the short term," Cieszynski said. "The US dollar is looking exhausted technically as it is and due for a correction, which could take some of the recent pressure off of gold."
