Gold price drops as Warsh warns Fed still has ‘work to do’ on inflation

AI desk brief

Gold sold off sharply after Fed chair Kevin Warsh signaled inflation remains too firm and that policymakers may still have “work to do,” with traders reading the Jackson Hole remarks as keeping a September rate hike alive. Comex December gold fell as much as 3.2% to $4,515.30/oz and was last down 2.7% at $4,535.90, roughly $173 below the overnight high of $4,688 and on track for its worst session in six weeks. The dollar firmed on the remarks, a headwind for bullion given the market’s sensitivity to real-rate expectations.

Warsh reiterated the 2% inflation target is “firm and fixed” and said short-term rates remain the main tool for policy, while also pushing back on Treasury’s expanded bond-buyback approach. That undercut the “debasement trade” that helped drive gold’s August rally. Even so, bullion-backed ETFs had recorded their biggest weekly gold addition since January, underscoring that medium-term positioning remains constructive despite the abrupt risk-off move in spot and futures.

Silver was hit harder, with December Comex silver down 4.1% to $67.34/oz, leaving it about 45% below January’s record. The gold/silver ratio was little changed near 67, but silver still looks set for a 16% August gain and remains the strongest precious metal over the past 12 months. Near term, the key catalyst is whether September hike odds keep rising; if they do, bullion could struggle to hold the $4,500 area, while a retreat in rate expectations would likely revive the August trend higher.