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Gold continued to decline today, losing up to 1.2 percent at one point and dropping to approximately $4,400 per ounce, following a more than 3 percent decline on Friday. Silver fell 0.4 percent to $66.12, while platinum and palladium also experienced declines.
The reason for the crash was Kevin Warsh's promise to fight inflation, made at the Jackson Hole symposium. The Federal Reserve chair confirmed that the central bank will bring inflation back to the 2 percent target, calling it a solid, fixed benchmark. Traders reacted immediately: the market now prices in a more than 65 percent probability of an interest rate hike at the September meeting, whereas before the speech, the odds were estimated at about 34 percent.
This shift toward a more hawkish stance caught many investors off guard, so short-term pressure on gold is expected to persist. Prices are likely to remain in the $4,200-$4,300 per ounce range in the near term; however, the long-term outlook remains relatively positive.
A surge in oil prices created additional inflationary pressure. On Sunday, American military forces struck Iranian missile installations that, according to the U.S., were preparing to send mines into the Strait of Hormuz. It is worth noting that this is the first American military action against Iran in more than a month, after President Trump shifted to a campaign of economic strangulation of the Islamic Republic. The return of the military factor means the return of the oil premium that fuels the Fed's inflation fears.
Nevertheless, the monthly result for gold remains strong. For August, the metal has gained about 10 percent. It is on track for its largest monthly increase since January, with the primary impetus being the unexpected announcement by the U.S. Treasury in mid-month to increase bond repurchases.
A paradoxical situation arises where two U.S. state institutions are pulling the metal in opposite directions. The Fed promises to raise rates, which directly impacts non-yielding gold, while the Treasury is acquiring bonds, undermining confidence in the stability of American finances and supporting the metal through a devaluation channel.
Regarding the current technical picture of gold, buyers need to conquer the nearest resistance at $4,481. This will allow them to target $4,540, above which it will be quite difficult to break through. The furthest target will be the $4,609 area. In the event of a decline, bears will attempt to take control of $4,432. If they succeed, breaking this range will deal a serious blow to the bulls' positions and could drive gold to a low of $4,372, with the potential for a move to $4,304.
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