Gold Outlook: Warsh's Hawkish Tilt Boosts Rate-Hike Bets — Payrolls Take Center Stage This Week

Gold went through a sharp reversal last week. Concerns over the U.S. fiscal deficit and continued central bank buying helped extend the rally that began earlier in the month, pushing prices as high as $4,700 intraday on Tuesday. But pre-event positioning ahead of a major risk catalyst, combined with Warsh's hawkish tone at Jackson Hole, quickly turned the tide.

This week, traders will be closely watching U.S. labor market data, including the nonfarm payrolls report. These releases could shape how the market prices the Fed's September policy path — and will likely be the key driver of gold's next move.

On the XAUUSD daily chart, gold's trajectory reversed sharply last week. After touching an intraday high of $4,697 on Tuesday, price fell hard, breaking below both the 200-day moving average and the $4,500 level, and dropping out of the ascending channel that had been in place since August.

Gold closed the week down 3.3%, putting a real dent in the previously bullish structure.

In early Monday trading, gold is testing $4,400 to the downside. In the near term, this level will be the deciding factor in whether the current move is a pullback or a reversal.

If price can reclaim ground above $4,400 and go on to recover $4,500 — or even retrace Friday's decline back toward $4,630 — this drop could still be read as ordinary profit-taking, with bulls positioned to challenge $4,697 again and eventually push toward $4,770.

If price breaks decisively below $4,400, the market may begin to conclude that the uptrend that began in August has run its course, with $4,300 emerging as the next potential support level.

The turning point in gold's rally came last Friday.

Warsh delivered his first keynote address at Jackson Hole since taking office three months ago, and the tone was unmistakably hawkish. He emphasized the Fed's 2% inflation target, stated that recent inflation data "does not suggest a meaningful improvement in the underlying trend," and argued that it was "hard to say financial conditions are restrictive."

The market's read on the Fed's reaction function shifted as a result. Previously, the assumption was closer to "hold steady unless the data supports a hike." Warsh's remarks prompted markets to start asking what kind of data would actually be needed to justify holding off.

Combined with his assessment of the economy's resilience and the credit market, along with the energy-driven price pressures reflected in July's PCE data, markets began reassessing the odds of a September hike. The implied probability jumped from 35% to around 65%, while the 2-year Treasury yield rose nearly 13 basis points in a single day to 4.36%, dragging the broader yield curve higher.

The dollar index also firmed at the margin. For a dollar-denominated, non-yielding asset like gold, a simultaneous rise in yields and the dollar means a higher opportunity cost of holding it — and that translated into clear downward pressure on prices.

Given how concentrated long positioning had become beforehand, the hawkish signal also triggered a wave of programmatic stop-loss selling, amplifying the short-term pressure.

Gold's rally through August was built, in large part, on the gradual unwinding of the "rising oil prices → higher inflation concerns → stronger rate-hike bets → pressure on gold" chain. Over the weekend, however, renewed escalation in the Middle East introduced fresh uncertainty into that picture.

U.S. forces struck Iran's Larak Island near the Strait of Hormuz over the weekend — the first military action against a target inside Iran in a month. Iran's Revolutionary Guard responded with a missile strike, calling the U.S. action a "strategic mistake" that would come at a heavy cost.

Oil prices jumped sharply at Monday's open, though gold's pullback so far has been limited. If the conflict escalates further and energy prices continue climbing, reigniting inflation concerns, markets could push rate-hike pricing even higher — adding more pressure on gold.

The immediate trigger for gold's reversal last week was clearly Warsh's hawkish speech. Absent a major geopolitical surprise, gold's near-term direction is likely to keep oscillating between the repricing of rate-hike expectations and the longer-term de-dollarization narrative.

Looking ahead, market attention shifts to a full slate of U.S. economic data — ISM manufacturing and services PMIs, JOLTS job openings, the ADP employment report, and weekly jobless claims. The most important release by far is Friday's August nonfarm payrolls.

The consensus expects 55,000 new jobs, an improvement from the prior reading of -23,000, with unemployment holding steady at 4.1%.

Given that payroll growth has now weakened for three consecutive months, a further deterioration — say, job growth near zero or unemployment climbing to 4.2% or higher — could reignite concerns about the health of the labor market, unwind some of the recent hike-expectation buildup, and give gold room to rebound.

Conversely, a resilient jobs report could push September rate-hike expectations even higher, keeping gold under pressure.

Over the longer term, continued buying from central banks and institutions, concerns about U.S. debt sustainability, and hedging demand tied to midterm election uncertainty all remain structural supports for gold. Whether capital keeps flowing back into tech and squeezing out precious metals is another dynamic worth watching.

Volatility could pick up meaningfully ahead of September's Fed meeting. For traders, the key is watching whether critical support levels hold — and if any bounce runs into resistance, keeping stop-losses tight.