Gold extended its rally into a third straight week, with spot prices climbing to $4,577.49 an ounce Friday morning, up from $4,482.79 a day earlier, as investors sought shelter from a widening federal debt burden and a bond market unsettled by the U.S. Treasury's latest borrowing plans. The metal has now risen in each of the past three weeks, a run that has coincided with growing uncertainty over how the Federal Reserve will handle a labor market that is cooling faster than inflation.
The latest leg of the rally began Wednesday, when gold jumped more than 4 percent after the Treasury Department said it would at least double the size of its long-term debt buybacks in an effort to hold down borrowing costs. The announcement came in the same week the national debt crossed $40 trillion for the first time, and it triggered a sharp drop in both Treasury yields and the dollar — a combination that typically makes non-yielding assets like gold more attractive to investors. Oil has moved in tandem, with crude trading near $87 a barrel and on pace for its own second consecutive weekly gain, a rise traders are reading as a fresh source of inflationary pressure rather than a sign of stronger demand.
Rate Bets Add Fuel
The rally has also been shaped by a shift in interest-rate expectations. Softer-than-expected consumer and producer price readings in early August pulled the market's implied odds of a September rate increase down to roughly 35 percent, from about 55 percent two weeks earlier, according to pricing in interest-rate futures. That reversal follows a Federal Reserve meeting in July at which policymakers held rates steady on a 9-3 vote, with three regional bank presidents dissenting in favor of an immediate quarter-point hike — a split that has left investors uncertain which camp will carry more weight when the minutes of that meeting are weighed against incoming data.
Attention now turns to the Fed's annual Jackson Hole symposium later this week, where Chair Kevin Warsh is scheduled to speak Aug. 28. Warsh took over the Fed in May and has broken with his predecessor's practice of signaling policy moves well in advance of meetings, meaning his remarks carry more weight than usual for a gathering that traders typically treat as a preview of the September decision. For gold, which tends to benefit when real rates fall or policy uncertainty rises, the speech is shaping up as the next major catalyst after a summer in which the metal has rarely traded lower for more than a few days at a time.
