02.09.202609:44 Forex Analysis & Reviews: August Rally Erased: Gold Returns to Pre-Treasury Intervention Levels

Gold has decreased another 0.5 percent to $4,300 per ounce, continuing a three-day decline. Over the previous three sessions, the metal has lost nearly 6 percent. Silver has fallen by 0.4 percent to $63.85, while platinum and palladium have also decreased.

Notably, the current drop has completely erased all gains accumulated since the expansion of the U.S. Treasury's bond repurchase program. Recall that the August rally, which lifted gold by nearly 15 percent for the month and above $4,650, was built on the theme of devaluation that resurfaced after the unexpected intervention by the Treasury on August 19. Today, nothing remains of that impulse.

The overlap of two factors caused the turnaround. Kevin Warsh confirmed the determination to combat inflation at Jackson Hole on Friday, while the U.S. and Iran resumed exchanging strikes after nearly a month of calm, pushing oil prices up. As a result, traders revised the probability of a Federal Reserve rate hike at the September 15-16 meeting to nearly 70 percent, pricing in at least two hikes by March of next year.

The Fed's position continues to shift towards a hawkish stance. Yesterday, Governor Michael Barr stated that the central bank must be prepared to raise rates if inflation does not begin to decline, warning of the risk of entrenched price pressure after more than five years of exceeding the target. Recall that at the July meeting, three regional reserve bank presidents had already voted for a hike, so Barr's statement expands the hawkish camp.

A situation is emerging in which gold has fallen victim to the same factor that previously lifted it. The geopolitical escalation surrounding the Strait of Hormuz should theoretically work in favor of safe-haven assets; however, through the oil channel, it drives inflation expectations and rates higher, and this effect proves stronger. The only scenario for the metal's return to August levels remains one where the market regains doubts about U.S. authorities' ability to control yields, and the erased results of Bessent's maneuver over three days show that such doubts may not be far off.

Regarding the current technical picture for gold, buyers need to reclaim the nearest resistance at $4,372. This will allow them to target $4,425, above which it will be quite challenging to break through. The furthest target will be around $4,481. In the event of a decline, bears will attempt to take control of $4,304. If they succeed, breaking this range will deal a serious blow to bulls' positions and could push gold down to a low of $4,249, with the potential to reach $4,186.