Gold Prices Dip as Dollar Strengthens, But Monthly Gain Remains on Track

Gold Prices Dip as Dollar Strengthens

Gold prices experienced a dip on Friday as the U.S. dollar and Treasury yields gained strength. The decline came after U.S. inflation data met expectations, showing no surprises that could sway Federal Reserve policy in the short term.

Despite this dip, gold prices are still set to close August with a 2% gain. Prices rallied to an all-time high of $2,531.60 on August 20, reflecting strong investor demand earlier in the month.

Inflation Data Matches Forecasts

The latest data from the Commerce Department showed the personal consumption expenditures (PCE) price index rose by 0.2% in July. This increase was in line with economists’ forecasts. The PCE data confirms that inflation is no longer the Federal Reserve’s main concern. The Fed has shifted its focus to unemployment, raising the possibility of an interest rate cut in September.

Alex Ebkarian, Chief Operating Officer at Allegiance Gold, said, “The PCE data validates the potential rate cuts in September.” This shift in focus has led to renewed speculation among investors about the Fed’s next move.

Rate Cut Speculation Intensifies

Investors are now eagerly awaiting the U.S. non-farm payroll report, due next week. “Next week will solidify whether or not we have a 50- or 25-basis-point interest rate cut at the September meeting,” said Phillip Streible, Chief Market Strategist at Blue Line Futures.

Following the inflation report, traders increased their bets on a 25-basis-point rate reduction by the Federal Reserve next month to 69%. The probability of a more aggressive 50-basis-point cut dropped to 31%, according to the CME FedWatch tool.

Gold Prices Dip on Weak Physical Demand in Asia

Physical demand for gold remained sluggish in major Asian markets, particularly in China, where new import quotas failed to boost buying. Daniel Ghali, Commodity Strategist at TD Securities, noted, “Systematic trend followers are effectively max-long. We also think that Shanghai positioning is near its record highs.”

However, Ghali pointed out that physical demand in China has been weak. Inflows into Chinese gold ETFs have not been strong enough to offset this lackluster demand. “Downside risks are significantly more elevated in the near term, given the fact that positioning looks extremely stretched,” Ghali added.

Broader Market Impact

Other precious metals also saw declines on Friday. Spot silver fell 1.8% to $28.92 per ounce, while platinum decreased by 0.9% to $928.42 per ounce. Palladium retreated 1.5% to $964.75 per ounce, though it has gained 4% so far this month.

Looking Ahead

Investors will closely monitor upcoming economic data, including the non-farm payroll report, for clues on the Federal Reserve’s policy direction. While gold has softened amid stronger dollar and Treasury yields, the broader economic outlook and central bank actions will continue to drive precious metal markets in the coming weeks.

Gold’s performance in August, with a 2% gain despite recent dips, highlights its role as a hedge against economic uncertainty. Whether this trend will continue depends largely on the Fed’s next move and the evolving economic landscape.

Gold prices experienced a dip on Friday as the dollar and Treasury yields strengthened following in-line U.S. inflation data. However, gold remains on track for a monthly gain, supported by ongoing speculation about potential Federal Reserve rate cuts. Investors are now focusing on upcoming economic reports, particularly next week’s non-farm payroll data, for further clues on the central bank’s policy direction. In the meantime, physical demand remains weak in major Asian markets, adding to the uncertainty surrounding gold’s short-term outlook.

Chart by Trading View