Gold traded near $4,460 an ounce on Tuesday, hovering close to a two-week low as rising oil prices and hawkish comments from Federal Reserve Chair Kevin Warsh bolstered expectations of a US interest rate hike this month. Oil extended gains for a second consecutive session after US forces struck an island in the Strait of Hormuz, prompting Iran to retaliate with attacks on the UAE and Jordan. The resulting increase in energy costs has heightened inflation concerns, reinforcing the case for a near-term Fed rate increase, a development that typically weighs on bullion.
Chair Warsh stated that the Fed would “have work to do” absent clearer evidence that inflation is on a sustained path back toward its 2% target. Following his remarks, markets moved to price in more than a 65% probability of a September rate hike, up from around 36% beforehand.
Despite the latest pullback, gold still advanced roughly 10% in August, supported by the US Treasury’s decision to double liquidity-support buybacks of longer-dated bonds, which has revived the so-called “debasement trade.”
