Gold ended August and the week with a gain, despite a mid-session pullback on Friday. The U.S. dollar and bond yields strengthened after the key U.S. inflation measure came in as expected, increasing the likelihood of a rate cut in ten days.
The only caveat for the U.S. Federal Reserve is the health of the U.S. job market, which will be tested with the August jobs report on Friday (around 175,000). The weak July figures of 114,000 (which some forecasters believe might be revised) are also a concern.
Fed Chair Jerome Powell stated ten days ago that the central bank is prepared to begin rate cuts as the labor market cools.
Comex gold for December delivery fell $32.20 to $2,527.60 per ounce, down from Thursday's record close of $2,560.30.
The Bureau of Economic Analysis reported that the July Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure, rose 0.2% in July from June, aligning with market expectations. The core rate, excluding volatile items, also increased 0.2% monthly and 2.6% annually, below the expected 2.7% rise.
This positive inflation data strengthens the case for a rate cut on September 18. A weak jobs report would likely solidify this expectation and raise speculation of a half-percentage point cut. However, this could trigger a new wave of "recession is here" commentary from market pessimists.
"Gold is benefiting from uncertainty combined with the widely anticipated rate cuts, creating a perfect storm of sorts that seems to have staying power in our view," Christopher Louney, a commodities strategist at RBC Capital Markets, wrote in a note on Friday. "As our conviction on caution continues to suffer and the rate-driven nature of gold's rise makes its data dependency ever more entrenched, this week's inflation figures and next week's U.S. employment report will be watched closely for gold implications, primarily through the dollar and rates."
The dollar rose following the inflation data, with the ICE dollar index increasing 0.38 points to 101.73. The U.S. dollar index fell 1.4% in August.
The Australian dollar ended at 67.64 cents, down half a percent for the week but up a solid 3.89% for August, one of its largest monthly moves in recent times.
The Australian dollar gold price ended at A$3,700 on Friday, according to the World Gold Council.
Comex copper gained nearly 2% last week to close at $4.22 a pound, representing a 3.7% increase for August.
U.S. Treasury yields also rose, with the two-year bond last seen paying 3.931%, up 2.9 basis points, while the yield on the 10-year benchmark bond increased 4.3 points to 3.908%.
