Sticky inflation supports the US dollar, but US Treasury repo suppresses yields; gold hovers around 4600 awaiting Jackson Hole's "tone-setting"

Huitong Network Aug 27—— During the European session on Thursday, gold traded around $4,600. PCE data showed sticky inflation—with the overall annual rate at 3.7% higher than expected, and the core annual rate at 3.3%, reinforcing expectations of a rate hike before year-end, which supports the US dollar. However, US Treasury repos suppress yields, and optimism over the US-Iran ceasefire (temporary alternative route for the Hormuz Strait) limits the dollar's upside, providing support for gold. Iran warned that the strait would not fully reopen, and geopolitical risks remain.

On Thursday (Aug 27), during the European session, gold surged then pulled back, giving up its modest intraday gains, and is currently trading near $4,600/oz. On Wednesday, US PCE data showed persistent inflation—with the overall annual rate at 3.7% (higher than the expected 3.6%) and the core annual rate steady at 3.3%, strengthening expectations for at least one more rate hike by the end of the year, which supports the US dollar.

However, US Treasury yields remain under pressure due to the Treasury's repo operations; combined with optimistic news on a US-Iran ceasefire deal and a temporary alternative route for the Hormuz Strait, the dollar's upside is capped, thus supporting gold.

PCE Data Reinforces Rate Hike Expectations, but Treasury Repos Suppress Yields

The US July PCE data released Wednesday again confirmed sticky inflation—with the overall annual rate at 3.7%, higher than the market's expectation of 3.6%, and the core rate steady at 3.3%. This outcome has reinforced expectations in the market that the Fed will hike rates at least once more before the end of the year, thereby providing some support for the US dollar.

However, ongoing Treasury repo operations have created noticeable buying in the US Treasury market, pushing down long-term yields and limiting the upside for the dollar.

Despite increased rate hike expectations, actual real rates are struggling to rise significantly due to lower yields, which in turn provides bottom support for non-yielding assets like gold. As a result, gold remains relatively stable around $4,600, demonstrating resilience under the dual forces of "sticky inflation" and "suppressed yields."

In the short term, as long as Treasury repo operations remain strong, downside risks for gold will be buffered, and the market is more likely to wait for the next catalyst while consolidating at high levels.

Geopolitical Optimism Limits Dollar Upside, but Risk Premium Remains

Recent media reports suggest a possible new US-Iran ceasefire agreement, and Iran's deputy foreign minister also stated that Tehran and Oman have reached a consensus on a temporary alternative route, boosting market risk appetite. This optimism limits the dollar's upside as a safe-haven currency, thereby providing additional support for gold.

However, Iran at the same time warned that unless the commitments related to the June temporary peace agreement are fulfilled, the Hormuz Strait will not fully reopen, and the geopolitical risk premium has not truly faded.

This uncertainty continues to support oil prices, while also prompting some funds to retain their safe-haven dollar positions, thus placing some constraints on gold's upside potential.

As a result, the market remains in a state where "optimistic expectations" and "residual risks" coexist: if ceasefire progress goes smoothly, gold may benefit from a weaker dollar; if negotiations repeatedly stall, demand for safe havens can again temporarily boost gold.

Overall, geopolitical factors have become an unavoidable variable in current gold pricing.

Market Awaits Jackson Hole Speech by Walsh

Investors are focusing their attention on Fed Chair Walsh's speech at the Jackson Hole global central bank annual meeting on Friday, hoping to gain more clues about policy direction.

Walsh's comments are expected to be the key catalyst for the short-term direction of gold: if he releases a hawkish signal, emphasizing inflation risks or retaining the option for further rate hikes, gold may be pressured to pull back to the $4,550–4,570 area; if his language is dovish or adopts a "less talk, more action" communication style, gold may retest resistance near $4,700.

Currently, gold is simultaneously influenced by sticky inflation, suppressed Treasury yields, geopolitical risk premiums, and policy uncertainty, and is likely to consolidate within the $4,580–4,650 range in the short term.

Market sentiment remains cautious, with both bulls and bears waiting for Walsh's speech to provide direction; only after a breakout above or below the range may the next trend move begin.

Summary

Gold has given up its intraday gains and is currently trading near $4,600. PCE data points to persistent inflation, strengthening rate hike expectations before year-end, which supports the dollar. However, Treasury repos suppress yields, and optimism on the US-Iran ceasefire limits the dollar's upside, thereby supporting gold. Iran warns that the Hormuz Strait will not fully reopen, and the geopolitical risk premium remains. The market awaits Friday's Jackson Hole speech by Walsh, which will be the key short-term catalyst for gold.


(Spot gold daily chart, source: EasyHuitong)

At 16:10 Beijing time, spot gold was quoted at $4,603.35.