Gold tends to gain in a high inflation environment and many portfolios contain gold as an inflation hedge. Some of the reasons for gold sideways price action in recent weeks have been the fact that inflationary pressures have kept rising putting short-term pressure on gold via increasing real yields and USD strength. In short, increasing expectations of aggressive Fed policy action have kept gold pressured. However, have we now seen peak USD strength and peak US 10-year bond selling? If we have then gold could start to move higher quickly from here.

On Thursday the core US PCE data is released, the Fed’s preferred measure of inflation. If that prints in low, and below the market’s minimum expectations, then calls will grow for peak inflation to have passed. This can allow the USD to weaken, US 10-year yields to fall, and gold to strengthen.
If we do see a very weak US core PCE print will gold then move higher in line with its strong seasonal pattern.

From June 28 through to August 28 gold has gained 11 times over the last 15 years. The average return has been +3.56% and the annualised return has been over 23.34%. The largest gain was +19.42% in 2011, but the largest fall was in 2008 with a -9.51% loss.

Major Trade Risks: If the US Core PCE print comes in above market expectations then gold may move lower on more aggressive Fed hiking expectations.

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