Gold Dips On Hawkish New Fed Chair

Gold pulls back on Fed Chair’s hawkish comments at Jackson Hole

The gold price declined -2.0% to US$4,530/oz after its huge run of the past month where it added US$500/oz, which appears to have been mainly driven by hawkish comments from the US Fed’s new Chair at the Jackson Hole central bankers meeting.

Gold ETF inflows jump only briefly over the past month

The inflows into gold and sector stock ETFs jumped only briefly in the first week of August 2026 and have been subdued since, suggesting that a major speculative bubble has not developed, and silver and copper ETF inflows have remained muted.

Gold stocks pull back after historical surge

The gold stocks declined, with the GDX down -3.1% and the GDXJ of -2.9%, although they are still up a huge 34% and 35% for August 2026, while the S&P 500 and Nasdaq rose 0.6% and 1.3% as strong Nvidia results offset the hawkish Fed.

Gold Dips On Hawkish New Fed Chair

The gold price declined -2.0% to US$4,530/oz, pulling back moderately from a huge run over the past month where it has added US$500/oz, and briefly went above the US$4,600/oz level. The drop seems to have been driven by the US Fed Chairman Warsh’s comments towards the end of the week-long Jackson Hole annual meeting of global central bankers, which the market took as relatively hawkish. This was considered the initial major look at the policy stance of this new Chair since being appointed in May 2022, with this his first time at the meeting as head of the central bank. The Fed Chairman’s speech and the overall outlook from Jackson Hole are considered key in setting the tone for US and global monetary policy and can have therefore have substantial implications for the economy.

The Fed Chairman noted that the central bank’s “price stability objective of 2.0% was a firm, fixed target,” suggesting that he would not necessarily be as flexible in letting it continue to run above this level, as was the case for the past few years. Warsh also noted that “the Fed’s preferred measure of inflation, the 12-month change in the PCE Price Index, stands at 3.7%,” and that the CPI index, and core PCE and CPI showed that “inflation is running above our 2.0% target”. The US CPI rose 3.3% yoy in July 2026, far ahead of the 2.0% target, and while this was boosted especially by volatile fossil fuel prices, core CPI inflation, excluding food and energy costs, still remained at 2.5% even after a pullback over the past two months (Figure 4). In addition to the large rise in the headline US PCE Price Index in July 2026, the Core PCE Index was also high at 3.3%, and neither of these figures had dropped below the Fed’s target at their respective recent lows of 2.3% and 2.6% in 2024 and 2025 (Figure 5).

While noting that there was still only moderate wage growth, he suggested that the measure was not that reliable in indicating future inflation. The Chairman also pointed to continued potential inflationary pressures from strong commodities prices, with the CRB index for the sector spiking to 522, its highest level ever, recently surpassing the previous 459 peak in June 2008, on the surge in energy, metals and other commodities prices (Figure 6). In terms of US growth, Warsh noted that the economy ‘appears to have strengthened’ from an already strong outlook at the July 2026 meeting, with the Fed indicating that ‘labour markets were stable, and output was solid.’ Warsh also highlighted strong business capital expenditure, profit growth and high margins, low credit spreads, and strong credit and loan markets as all pointing to a robust economy.

The Fed Chairman also continued to view US employment as strong, given low unemployment claims and a low unemployment rate, which while having declined to 4.1% from highs of 4.5%, has still jumped from lows of 3.5% in January 2023 (Figure 7). However, even with the major rise, historically these figures are extremely low, and the trough in early 2023 was among the lowest US unemployment levels of the past six decades. It certainly nowhere the typical highs that have been around 10.0%, with the nearly 15.0% in the global health crisis the only major exception (Figure 8).

Overall, this certainly does not seem to point to a Fed Chairman that has entirely taken rate hikes off the table for the rest of this year, even though the market’s expectations for such a move have declined considerably. This had come after major interventions by the US Treasury and a slump in US payroll figures seemed to indicate both significant underlying global financial and domestic employment issues, contrasting with the Fed’s bullish economic outlook. However, Warsh attributed the weak payroll data to a low level of US labour force growth, suggesting that jobs data was unlikely to surge without a rising number of workers.

US Treasury interventions indicate financial system issues

The market interventions by the US Treasury were focused first on the Japanese Yen in late July 2026 and then long-maturity bonds in the second half of August 2026. The US Treasury had become concerned with a rise in long-term borrowing rates, with the 30-year bond yield rising substantially over 5.0%, boosting the government’s cost of debt service. To lower these yields, it made major 30-year bond purchases, which did reduce the yield to 5.21% from a peak 5.31%, and sold shorter-term bonds for funding, which lowered the 10-year yield to 4.72% from 4.65% (Figure 9). While this could be considered somewhat successful, presumably US Treasury would have been expecting a greater decline in longer-term bond yields.

The US Treasury’s earlier Yen purchases were related to this overall effort to support the longer-term debt market. While Japan is the largest holder of US debt, the slump in its currency has increased pressure on the government to sell off some of these holdings to support its currency. The Yen had ranged consistently between JPY80- JPY140/US$ for about three decades, but the currency had exited this range in recent years, slumping to lows of JPY162.3/US$ in July 2026 (Figure 10). To prevent such a sell off from lowering US bond prices and therefore driving up their yields, the US Treasury purchased a substantial amount of Yen to support the currency. Similar to the bond market intervention, there was a degree of success with the rate declining to JPY158.9/US$, although there remains a question of how long either the US long bond yield will be held down, or the Yen held up.

While interest rates have actually been rising in Japan, they have not supported the currency, as might be expected, as the spread with other major countries has remained reasonably wide. While substantial, the spread has become less attractive compared to when the country’s interest rates were near zero. This had enabled a major Japan carry trade, where markets could borrow extremely inexpensive in Yen and then lend at much higher rates abroad. If Japan rates continues to increase interest rates and the Yen appreciates further, it could make this trade much less attractive. This could reduce a major source of funding that global markets have been using to invest in risky assets, including the ongoing AI-driven tech boom which has been one of the key sources of global equity market gains for several years.

The Fed has history of attacking high inflation, but not asset bubbles

Neither of these actions from the Treasury seemed to suggest that the US or global financial system was in great shape, and implied that the strong economic outlook outlined by the Fed Chairman could be built on somewhat shaky foundations. It remains to be seen whether the Fed will really be as hawkish in practice as implied in the Jackson Hole speech. The central bank does have a strong history of attacking inflation with rate hikes, but this has tended to be only after extreme price increases heading towards, or above, 10%, as seen in the late-1970s and early-1980s, and during the inflation surge after the global health crisis. However, the only moderately elevated inflation of 2.5%-4.0% currently is certainly not a major crisis yet.

The Fed does actually have a history of letting other types of inflation run that are not showing up in their main inflation measures like CPI or PCE Index. This has included the extreme share price inflation of the dot.com bubble and the explosion in US house prices during the 2008-2009 financial crisis. It seems that a similar situation could be repeating in the current AI boom, with share prices for the largest US tech companies surging to valuations that appear increasingly precarious.

This continued boom in tech was a key factor supporting the larger cap equity markets this week, with the S&P 500 up 0.6%, the Nasdaq rising 1.3%, even as the hawkish Fed might have been expected to drive declines. This was mainly because of strong results from Nvidia, which now comprises a massive 8.1% of the S&P 500 and 9.5% of Nasdaq. However, there was still a -1.4% decline in the small cap Russell 2000 index, where the maximum market cap is just under US$6.0bn, and therefore is not influenced by megacap tech like Nvidia.

The concern over a potential rate hike drove down the gold price, as this implied both higher real yields and an increase in the US$, which move inversely to the metal, and a potentially lower money supply growth, with an expanding monetary base the key fundamental long-term driver of the metal. However, gold did not react as negative as might have been expected by the quite hawkish Fed chair comments, implying that its current run still has support. The decline in gold stocks was also relatively muted, with the GDX down -3.1% and GDXJ losing 2.9%, especially in the context of gains over the past month of 34% and 35%.

Inflows to gold sector jump, but for other metals muted

The inflows into the gold and sector stock ETFs during the metal’s major August 2026 run were concentrated in just one week at the start of the month, with a major jump for the GLD gold price ETF and GDX ETF of gold producers, not actually sustained in the subsequent weeks (Figures 11, 12). This seems to show that it is not a more speculative, retail move driving the gains, and the US Treasury interventions suggest changes in fundamentals that could support gold, even given a more hawkish Fed. The inflows into the SLV silver price ETF and SIL ETF of silver stocks have been subdued even as the metal price jumped and inflows into the COPX ETF of copper stocks have been relatively low as the metal price has declined (Figures 13, 14).

Major producers mostly decline while TSXV gold mixed

The major producers nearly all declined and TSXV gold was mixed (Figures 14, 15). For the TSXV gold companies operating mainly domestically Osisko appointed Mr. Elijah Tyshynski as its Chief Financial Officer and Thesis closed its strategic investment by Anglogold Ashanti for proceeds of CAD$58.4bn. (Figure 16). For the companies operating mainly internationally, Benz announced an AUD$150mn private placement, Asante reported an extension of Senior Facilities agreements and deferral $50mn in capital expenditure and reduced its production guidance, and Heliostar started mining at the Vedra Madre pit (Figure 17).