Gold Holds Steady After Sharp Drop as Warsh Revives Fed Rate Hike Expectations
Gold prices edged higher on Monday after suffering a steep selloff in the previous session, as investors reassessed the outlook for Federal Reserve interest rates following hawkish remarks from Fed Chair Kevin Warsh on inflation.
Rising oil prices added to market concerns, although the broader fiscal backdrop that fueled gold’s powerful rally throughout August continued to provide underlying support.
Despite Friday’s decline, gold remains up roughly 10% for the month and is on track for its strongest monthly gain since January.
As of 03:53 WIB, spot gold (XAU/USD) climbed 0.2% to $4,464.65 per ounce, while Gold Futures slipped 0.4% to $4,513.50. Silver (XAG/USD) gained 0.4% to $66.64 per ounce, and platinum (XPT/USD) advanced 0.7% to $1,835.35. Meanwhile, the U.S. Dollar Index eased 0.1% to 99.60.
Warsh’s Inflation Warning Rekindles Fed Rate Hike Bets
Gold plunged 3.2% on Friday, marking its largest one-day decline since early June, after Warsh emphasized that the Federal Reserve still has significant work to do in bringing inflation back to its 2% target.
His comments prompted traders to increase expectations for another rate hike, with markets now pricing in a roughly 57% probability of a September increase, according to CME FedWatch data.
Higher interest rate expectations typically weigh on gold because the precious metal does not generate yield. When rates remain elevated, interest-bearing assets such as government bonds become more attractive relative to gold.
The U.S. dollar also strengthened after Warsh’s remarks, adding further pressure to bullion prices by making gold more expensive for holders of other currencies.
Analysts at ANZ said the latest decline reflects this shift in market sentiment. They noted that Warsh’s inflation warning boosted expectations for additional tightening later this year, reducing investor demand for gold. However, the bank believes downside risks may remain limited as currency debasement concerns continue to attract long-term buyers.
Rising Oil Prices Add Inflation Pressure
Additional pressure came from the energy market, where Brent crude rose to around $89.38 per barrel on Monday, while U.S. crude reached $84.50.
Oil prices climbed after U.S. forces reportedly struck Iranian missile launchers on Larak Island on Sunday. Reports also indicated that Iran launched retaliatory attacks against U.S. troops stationed in Jordan, fueling concerns that geopolitical tensions could escalate further and keep energy prices elevated.
Persistently high oil prices could complicate the inflation outlook, potentially reinforcing the Federal Reserve’s cautious stance on monetary policy.
Treasury Intervention Keeps Currency Debasement Theme Alive
Gold’s August rally gained momentum earlier this month after the U.S. Treasury unexpectedly increased purchases of long-dated government bonds.
The move pushed Treasury yields lower and weakened the dollar, while reigniting concerns about rising government debt and efforts to manage borrowing costs. These developments revived the currency debasement trade, a major driver behind gold’s strong performance over the past year.
The debasement theme helped fuel a nearly 65% surge in gold prices during 2025, as investors increasingly turned to the precious metal as a hedge against widening fiscal deficits, currency depreciation, and declining purchasing power.
While ANZ views the latest hawkish shift in monetary policy as a near-term headwind for gold demand, the bank argues that the fiscal and currency concerns underpinning the debasement trade remain firmly intact.
Gold had rebounded sharply from its late-June low near $3,942 before Friday’s correction. Strong demand from central banks and institutional investors has also helped keep prices comfortably above the key $4,000 level.
Looking ahead, markets will closely monitor upcoming U.S. employment and inflation data for clues on whether the case for a September rate hike will strengthen further or whether expectations for tighter monetary policy will begin to ease again.