Gold is entering a stronger phase as a weaker US dollar, concerns over US government debt and expectations around Federal Reserve policy continue to support demand for the precious metal.
October gold futures on Comex moved above US$4,700 per troy ounce on 24 August, reaching US$4,706.40 before trading around US$4,713.80 in early activity. Spot gold was lower, trading in the mid-US$4,600s during the European session after reaching an intraday high of US$4,659.92. The difference reflects separate instruments and trading times, but both point to renewed strength across the gold market.
The weaker US dollar remains a major support. When the dollar falls, gold becomes more affordable for buyers using other currencies, helping broaden international demand. The dollar is trading close to multi-month lows, giving bullion a favourable currency backdrop at a time when interest in defensive assets remains firm.
US fiscal conditions are adding another layer of support. Rising government debt, borrowing requirements and concerns over the long-term value of the dollar are strengthening gold’s role as a store of value.
Normally, higher bond yields create pressure on gold because bullion does not generate interest. The current environment is more complex. If yields remain high because markets are concerned about inflation, deficits and government borrowing rather than stronger economic growth, gold can continue to benefit from demand for assets viewed as protection against monetary and fiscal uncertainty.
The next major catalyst is US inflation data. July Personal Consumption Expenditures figures are due this week and will help shape expectations for Federal Reserve policy. A softer inflation reading could strengthen the case for a less restrictive policy stance, placing further pressure on the dollar and supporting gold. Even if inflation remains firm, gold’s recent price structure suggests the market is entering the data from a position of strength.
KEFI Gold and Copper plc (LON:KEFI) is an exploration and development company focused on gold and copper deposits in the highly prospective Arabian-Nubian Shield. The Company operates in Ethiopia and Saudi Arabia with projects including Tulu Kapi project, Jibal Qutman EL and Hawiah.
