By COMFORT OGBONNA
Gold prices were little changed on Friday as investors remained cautious ahead of remarks from Federal Reserve Chair Kevin Warsh at the Jackson Hole economic symposium, with markets looking for clues about the central bank’s approach to interest rates and inflation.
Spot gold was nearly flat at $4,603.91 an ounce by 0652 GMT. The precious metal reached a more than three-month high of $4,696.18 on Tuesday after the U.S. Treasury announced measures aimed at supporting the market for longer-term government bonds.
U.S. gold futures edged 0.1% lower to $4,657.10.
Investors are closely watching Warsh’s comments because the direction of U.S. interest rates remains one of the biggest factors influencing gold prices. Higher interest rates generally reduce the appeal of gold because the precious metal does not generate interest or other regular income.
Matt Simpson, a senior analyst at StoneX, said the arguments for Warsh taking a more hawkish position appeared stronger than those for a softer approach.
A more hawkish message could put additional pressure on gold and push prices further away from their recent highs, at least in the short term. However, Simpson said any decline could attract buyers who had missed the initial surge in the precious metal.
Those investors could use a pullback as another opportunity to enter the market, particularly as some traders continue to see the possibility of gold eventually reaching $5,000 an ounce.
The Federal Reserve’s inflation outlook has become increasingly important for financial markets as policymakers gather in Jackson Hole.
Several Fed officials expressed concern about the persistence of inflation on Thursday. Their comments followed data showing that the Personal Consumption Expenditures price index, the central bank’s preferred measure of inflation, rose 3.7% in the 12 months through July.
The inflation reading has strengthened the argument among some policymakers for maintaining a restrictive monetary policy, particularly if price pressures remain above the Fed’s long-term target.
Warsh is scheduled to speak later Friday, and investors will be watching closely for any indication of how policymakers are assessing the balance between inflation risks and economic growth.
Financial markets are currently pricing in roughly a one-third chance of a U.S. interest-rate increase in September. By December, traders see the probability of a rate increase at about 74.2%.
The outlook for monetary policy has important implications for gold.
Because gold does not pay interest, it tends to become less attractive when government bond yields and interest rates rise. Conversely, expectations of lower rates can support demand for the metal by reducing the opportunity cost of holding a non-yielding asset.
Despite the potential pressure from higher rates, gold continues to receive support from several other factors.
Investment demand through exchange-traded funds and futures has been improving, while concerns about U.S. fiscal conditions have encouraged some investors to seek assets viewed as a store of value. Continued purchases by central banks and other official-sector institutions have also provided support.
Christopher Wong, a precious metals strategist at OCBC, said these factors remained supportive of gold but warned that the market could still enter a period of consolidation after its strong gains.
Gold’s recent performance has attracted renewed attention as investors assess whether the metal can sustain its upward momentum following a prolonged period of strength.
The precious metal has benefited from a combination of expectations surrounding monetary policy, concerns over government finances and continued demand from institutional and official-sector buyers.
However, the market remains sensitive to changes in expectations for U.S. interest rates. A stronger-than-expected signal from the Federal Reserve that rates could remain high for longer could trigger profit-taking among investors who have benefited from gold’s recent rally.
Developments in physical markets also pointed to changing demand patterns.
Gold discounts in India fell sharply this week as local demand weakened. The decline came amid speculation that the government could consider reversing a recent increase in import duties, prompting buyers and sellers to adjust their positions.
Other precious metals performed more strongly on Friday.
Spot silver rose 1.3% to $70.13 an ounce, while platinum gained 1.7% to $1,878.58. Palladium climbed 2.1% to $1,379.50.
The broader precious metals market is now waiting for clearer direction from the Federal Reserve. Warsh’s comments could influence expectations for interest rates, Treasury yields and the dollar, all of which can have a significant effect on gold and other metals.
For gold investors, the immediate question is whether the Federal Reserve will signal that inflation remains the central concern or acknowledge enough progress to keep the possibility of lower rates on the table.
A hawkish message could weigh on gold in the short term, while a less aggressive tone could renew buying interest and potentially put the metal back on track toward its recent highs.
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