Gold steadies as investors focus on Warsh’s Jackson Hole speech

Gold steadied near $4 600 an ounce, as investors weighed the outlook for US interest rates ahead of a key speech by Federal Reserve Chairman Kevin Warsh.

The precious metal was headed for the biggest monthly gain this century after advancing almost 14% in August. The latest rally was accelerated by the US Treasury’s surprise intervention in the bond market, which revived interest in the so-called debasement trade that helped power gold’s record-breaking rally last year. Bullion held on to those gains on Friday, after erasing a dip from earlier in the session at the opening of trading in London.

Investors will be seeking clues to the Fed’s approach to inflation when Warsh makes his first major speech as chairman later on Friday. High interest rates are a headwind for non-yielding gold.

The much-anticipated address at the central bank’s annual Jackson Hole symposium offers Warsh an opportunity to counter criticism that he hasn’t been forthright with his views on the economy.

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The event is “one of the few opportunities Warsh has to directly shape the narrative and calm market sentiment,” said Justin Lin, an analyst from Global X ETFs, adding that investors are likely to be cautious ahead of the speech.

Economists and policymakers are divided over the need to hike rates in the coming months. Though Fed officials kept borrowing costs unchanged in July, three dissented in favour of a quarter-point hike.

At Jackson Hole on Thursday, two central bank officials said Fed policy was not restraining the US economy at a time when inflation continues to run above a 2% target, urging their peers to act soon to cool price pressures. But Fed Bank of Boston President Susan Collins said there’s evidence that rates are “mildly restrictive.”

Gold’s marked rebound is supported by a broad range of investor participation, which has helped the metal to hold above the 200-day moving average that’s seen as a key technical support level. Bullion-backed exchange-traded funds tracked by Bloomberg added more than 28 tons last week, the most since January, followed by a further 20 tons so far this week. Central banks have also stepped up purchases.

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Treasury efforts to contain long-term borrowing costs could push investors out of steepeners and back into gold., Citigroup Inc strategist Dirk Willer said on a podcast this week.

Steepeners — bets that the gap between short- and long-term Treasury yields will widen — had remained one of the few surviving expressions of the debasement trade after investors cut bets on higher gold and a weaker dollar, Willer said.

“With that action at the back end, steepeners is probably not the right trade to express those fears,” Willer said. “And so, we would expect investors to reduce steepeners and instead buy gold back and short the dollar again.”

Spot gold rose 0.1% to $4 606.04 an ounce at 10:55 a.m. in London. Silver rose 1.8% to $70.50 an ounce. Platinum and palladium also gained. The Bloomberg Dollar Spot Index, a gauge of the US dollar, was steady.

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