Gold's next test: Can the August rally survive Jackson Hole?

Disclaimer: This article is written by Kaynat Chainwala, AVP - commodity research of Kotak Securities. Views expressed are his own. Readers' discretion is advised.  Gold has staged its sharpest monthly recovery since January, climbing over 10 per cent in August to above $4,400 per ounce, and the drivers behind that move deserve close examination because they are not uniformly durable. The rally has been built almost entirely on a shift in Federal Reserve rate expectations, and this week has begun testing whether that foundation can hold against rising global yields, elevated crude prices, and a policy speech that could reshape the market's entire second-half outlook.  The mechanics of August's recovery are instructive. Gold broke decisively above its $4,000-$4,200 consolidation range in the first week of the month, posting its strongest weekly performance since January as softer crude prices eased inflation concerns and brief optimism around a Hormuz shipping arrangement reduced the supply-disruption premium embedded in oil. Global gold ETFs recorded 23.5 tonnes of inflows in July, reversing two straight months of outflows. The following week extended the move, with gold pushing above $4,440 for the first time since early June as cooling price pressures reinforced the rate-hold thesis further.  The US data flow has been the most consequential driver of that rate repricing, and the cumulative weight of July's releases has been difficult to dismiss. Nonfarm payrolls fell by a surprise 23,000, the first outright decline in months. July CPI and PPI both confirmed that disinflation is holding, with headline and core readings coming in broadly in line rather than reaccelerating. Retail sales fell 0.6 per cent against expectations of a modest gain, and consumer sentiment posted its sharpest drop in months as Iran war-related inflation concerns weighed on household confidence. Taken together, this string of releases has materially shifted the policy calculus. The probability of a September hold now stands at 67 per cent, up sharply from 42 per cent a month ago, while December hold odds have moved to 35 per cent from 20 per cent. These are not marginal adjustments. They represent a genuine repricing of the tightening cycle, and gold has responded accordingly.  The bond market's response to that data, however, has complicated the picture considerably. The 10-year US Treasury yield recently climbed to 4.75 per cent, its highest in 20 months, while the 30-year has pushed to 5.33 per cent, a 19-year high, driven by persistent inflation concerns and rising fiscal deficit anxiety. The divergence is analytically important. Short-term rate expectations have moved in gold's favour as the Fed hold probability has risen, but long-term yields have continued climbing independently, creating a genuinely conflicted environment that partly explains why the recovery has stalled rather than accelerated at the $4,400 level.      The friction this week reflects that same conflict. Renewed oil price pressure from the Hormuz standoff and multi-decade highs in long-term borrowing costs across the US, Japan and Germany have pulled spot gold back below $4,350. The transmission chain that defines this market has not broken. Elevated oil sustains inflation concerns, inflation concerns keep the hawkish Fed scenario alive, and a hawkish Fed is structurally negative for non-yielding bullion regardless of the base case.  The structural demand floor beneath prices is perhaps the most important development of the past several weeks, and one the rate narrative alone does not capture. The People's Bank of China added 20 tonnes to its gold reserves in July, extending its buying streak to 21 consecutive months, the longest on record. Chinese gold ETFs have added approximately 8 tonnes so far in August, with inflows recorded on almost every trading day of the month, reflecting sustained institutional allocation to bullion as a reserve diversification tool amid a fragmenting geopolitical landscape. That demand layer is not rate-sensitive in the way speculative positioning is, and it provides a floor that short-term yield moves alone are unlikely to dislodge.  The immediate directional question sits with Fed Chair Kevin Warsh's Jackson Hole keynote on August 28, his first as Fed chair and the last significant policy communication before the September 16 FOMC meeting. Markets will parse his remarks for any signal on how the committee is weighing sticky inflation against softening labour market conditions, and whether the 9-3 vote to hold in July reflects a committee closer to hiking than the headline decision implied. A dovish lean could push prices to test $4,450, closing above which opens the path toward $4,600. A hawkish surprise, or even studied ambiguity, could see gold test the $4,300 support level, below which $4,200 becomes the next meaningful reference.  On the 4-hour chart of MCX Gold Futures, price has sustained above the falling trendline breakout, confirming a shift towards a bullish short-term structure. The recent advance has formed higher highs and higher lows, although price is currently consolidating below the 156,200–157,330 resistance cluster. Momentum remains constructive, with RSI at 53.90, holding above the neutral 50 zone despite moderating from higher levels. Key supports are placed at 151,900 and 150,600, while a decisive breakout above 157,330 would strengthen the upside structure. The near-term bias remains positive above 151,900, with sustained trade above 157,330 likely to trigger further upside; a break below 150,600 would weaken the bullish setup.  Gold's August recovery has genuine structural support beneath it. Whether that support is sufficient to sustain a move higher depends on whether the disinflationary narrative survives contact with Jackson Hole.