Gold fell marginally on firmer rates and ETF weakness
Gold fell slightly during August, down 0.6% in US dollars, on modestly firmer interest rates following strong US jobs data. Gold is now approximately 4% lower on the year. Global financial markets were relatively quiet during the month, which is common in August, with most stock markets drifting higher on lighter volumes. Geopolitical news was a focus as the US abruptly pulled its forces out of Afghanistan; now that the Taliban has assumed control of the Afghan government, there are concerns that certain global geopolitical tension – which had subsided since the 2020 US Presidential election – could be reignited.
However, despite the slight price weakness there were signs of green shoots for gold. Federal Reserve Chairman, Jerome Powell, spoke at the Jackson Hole summit on 27 August, with his “lack of substantial further progress” comments positively impacting the price of gold, up 1.4% on the day; the move reflected his widely anticipated comments, and it appears tapering will be pushed into 2022, particularly as just last week US jobs data came in much lower than expected – the lowest in seven months.
According to our short-term model (Chart 1), the slight fall in the gold price in August was primarily driven by momentum factors, led by ETF outflows and a reversal from the strong July gold return, as well as modestly higher rates. Countering their negative impact was follow-through from interest rate declines in July. Despite the August 9th flash crash, gold ended an otherwise uneventful month resiliently flat.
Chart 1: Firmer interest rates, ETF outflows and a strong July, countered by lagged rate effects left gold near-flat by month-end
Contributions of gold price drivers to periodic gold returns*
