Gold prices fell sharply on Friday, losing more than 2.5% after Federal Reserve Chair Kevin Warsh struck a hawkish tone at the annual Jackson Hole symposium. The decline pushed the spot price to $4,473, down from a session high of $4,629, as traders reacted to the prospect of further interest rate increases.
The sell-off was driven by a strengthening US dollar and a jump in Treasury yields. The US Dollar Index rose 0.60% to 99.72, while the 10-year Treasury yield climbed 5.5 basis points to 4.728%. Higher yields increase the opportunity cost of holding non-yielding assets like gold, while a stronger dollar makes the metal more expensive for buyers using other currencies.
Warsh signals inflation fight not over
In his prepared remarks, Warsh said inflation remains a priority for the Federal Reserve. He noted that underlying inflation measures have not improved and that the central bank must be confident inflation is returning to its 2% target. “Otherwise, we have work to do,” he stated. While acknowledging that consumer spending is healthy and the labour market is solid, Warsh described the price stability figures as “more concerning,” suggesting the Fed would continue to focus on bringing inflation down.
Money market pricing reacted immediately. According to Prime Terminal, the probability of a 25-basis-point rate hike at the Fed’s September 16 meeting initially rose to 50%, before settling at around 44%. For the December meeting, markets see an 82% chance of a rate increase, up from 34% a day earlier for September.
Other data released on Friday did little to alter the mood. The annual revision of nonfarm payrolls showed a loss of 79,000 jobs, far worse than the forecast gain of 183,000 but an improvement from the previous revision of -911,000. The University of Michigan consumer sentiment index for August came in at 51.7, slightly above the 51 estimate but down from July’s reading. Inflation expectations for the next year eased to 4% from 4.2%, while five-year expectations held steady at 3.3%.
Technical levels in focus
Gold’s price action saw the metal briefly test the 200-day simple moving average (SMA) at $4,527 before reversing higher on Warsh’s comments. It later pushed back above the psychological $4,550 level. From a momentum perspective, the relative strength index (RSI) remains above 50, indicating buyers are still in control overall, but the indicator has been trending lower, suggesting sellers are gaining short-term influence.
If gold falls below the 200-day SMA, the next area of interest is the 100-day SMA at $4,374. On the upside, the first resistance is $4,500. Once that is reclaimed, the next targets are the 200-day SMA at $4,527, then $4,600, followed by the August 27 daily high of $4,643 and the elusive $4,700 level.
For context, the Federal Reserve uses interest rates to manage inflation and employment. When inflation runs above the 2% target, the Fed raises rates, which typically strengthens the dollar and weighs on gold prices. The Fed holds eight policy meetings per year through the Federal Open Market Committee (FOMC), which includes 12 voting members.
Key takeaways
- Gold fell more than 2.5% to $4,473 after Fed Chair Kevin Warsh’s hawkish Jackson Hole speech.
- The US Dollar Index rose 0.60% and the 10-year Treasury yield jumped to 4.728%, pressuring gold.
- Money markets now see a 44% chance of a September rate hike and an 82% chance by December.
- Key support lies at the 100-day SMA of $4,374; resistance starts at $4,500 and the 200-day SMA at $4,527.
Common questions
Why did gold fall on Friday?
Gold dropped after Federal Reserve Chair Kevin Warsh signalled that inflation remains a priority and that the central bank may need to raise interest rates further. A stronger US dollar and rising Treasury yields added to the selling pressure.
What are the next support levels for gold?
If gold breaks below the 200-day simple moving average at $4,527, the next support is the 100-day SMA at $4,374. Below that, the $4,500 level acts as psychological support.
The recent price action underscores how sensitive gold remains to shifts in monetary policy expectations. Traders will watch for further clues from Fed officials ahead of the September meeting. For the latest price, see the live gold price.