Gold Pulls Back: Is the Major Rally Running Out of Steam?
Gold prices retreated during Thursday's trading (August 20) following a strong surge in the previous session. Spot gold fell approximately 0.8% to US$4,487.41 per troy ounce, having previously touched its highest level since early June. Meanwhile, gold futures remained relatively stable around US$4,544.56 per troy ounce.
Downward pressure on gold stemmed primarily from profit-taking after prices jumped more than 4% on Wednesday. The earlier rally was triggered by the US Treasury Department's surprise decision to double the size of certain long-term Treasury buyback operations, which helped suppress bond yields and boost gold's appeal.
Declining Treasury yields continue to support bullion. When yields fall, the opportunity cost of holding non-interest-bearing gold decreases. At the same time, the US dollar remains near three-month lows, helping to limit the extent of gold's correction.
Medium-term sentiment is also bolstered by growing concerns regarding the US fiscal situation. Total US government debt has surpassed US$40 trillion for the first time, sparking worries about the heavy interest burden and the government's ability to maintain long-term fiscal sustainability.
However, inflation risks remain a major headwind for gold. Recent FOMC minutes indicate that many Federal Reserve officials remain open to considering interest rate hikes if inflation fails to decline toward the 2% target. Nevertheless, the market currently assigns only a one-third probability to a Fed rate hike in September, with the base-case scenario remaining unchanged rates.
Newsmaker Analysis: The current gold correction appears to be profit-taking following an extreme rally rather than a fundamental shift in trend. As long as Treasury yields remain contained and the dollar stays weak, gold's downside potential is likely limited. However, having failed to sustain momentum above US$4,500, the market will be watching closely to see if buyers step back in or if the correction continues. The US$4,450–US$4,460 range serves as a key support level, while US$4,500–US$4,520 has once again become the immediate resistance. (arl)
Source: Newsmaker.id
