Gold Rebounds $100 as US Inflation Holds Steady
Gold prices surged nearly $100 per ounce on Friday following stable US inflation data. The metal cut weekly losses from 2.7% to 0.7% as bond yields eased from multi-decade highs.
Gold gained almost $100 per ounce on Friday. The price jumped from $4300 to nearly $4394. This move reduced the weekly loss from 2.7% to 0.7%. The rebound occurred after US inflation data matched forecasts. Consumer price inflation held at 3.4% per year in August. The core measure slowed to 2.4% as expected.
Long-term bond yields eased following the data release. The 30-year US Treasury yield stood at 5.37%. This is the highest level since July 2004. Inflation-protected 30-year securities offered a real yield of 3.06%. This real rate is the highest recorded since 2010. Silver also rose more than $2 per ounce. It recovered from a three-week low near $63.
Real rates lose traditional grip
The historical inverse relationship between gold and real yields has weakened. UBS strategist Bhanu Baweja noted a breakdown in this dynamic since 2022. The 13-week correlation with 5-year TIPS shifted from -0.58 to +0.13. The correlation with 30-year TIPS rose to +0.70. This shift reflects changing market dynamics after Western sanctions. Gold now serves as a hedge against reserve asset risks.
Fed rate expectations adjust
Market bets on Federal Reserve action increased after the data. Traders now assign an 85% probability to a quarter-point rate hike. This would raise the ceiling to 4.00% per annum. Expectations for a no-change decision dropped to their lowest since mid-July. The CME FedWatch tool tracks these derivatives-based probabilities. This shift influences the opportunity cost of holding non-yielding assets.
Debt sustainability concerns persist
Analysts cite fiscal dominance as a driver for gold demand. MKS Pamp strategist Nicky Shiels points to sticky inflation and debt supply. US Treasury buybacks of $6 billion failed to calm yields. The Financial Times describes this as insufficient to stem borrowing cost surges. Gold acts as a policy hedge in this environment. The source, GN markets/inflation (en-US), highlights these structural risks.
