Investing.com | Aug 25, 2023 03:27
Is gold going to stage a breakout post-Jackson Hole today?
Aside from what Chairman Jay Powell says at the Fed’s flagship event in Wyoming, the answer lies almost certainly with how the dollar and U.S. Treasury yields will react — and the impact of their combined actions on the yellow metal.
Of course, all that would be rote to those trading or following gold day in, and day out.
What isn’t known, though is how U.S. and global data would stack up over the next 3-½ weeks leading up to the Sept 20 rate decision of the Federal Reserve, which is still looking for a stay rather than a hike.
That’s super important because whatever Powell and his policy-making colleagues on the FOMC, or Federal Open Market Committee, say in the interim could turn academic in the face of that data. The central bank has repeatedly stressed that its decisions will be data-driven.
Still, the near-term direction is something our readers look forward to. And with gold’s stay in the $1,900-an-ounce lane looking as tenuous as possible — never mind the odds of it returning to $2,000 — we’ll attempt to plot the imminent highs and lows with the help of our regular collaborator in commodities charting, Sunil Kumar Dixit of SKCharting.com.
But first, a look at the tack Powell is likely to use at Jackson Hole and — notwithstanding that — the positives and red flags in gold’s way.
With price pressures cooling from a four-decade high of more than 9% in June 2022 to reach just 3% last month, Powell might see the need for his speech to be more rates-centric, to finish what’s left in the last mile of the central bank’s work: Returning to an inflation of 2%.
Former Fed Vice Chair Donald Kohn said in comments carried by Bloomberg said Powell likely “will caution against easing too soon”.
“I think that’s going to be a theme here. It would be actually helpful for him to spell out what he means by data-dependence, tamping down the very strong reaction of markets to each piece of data.”
Vincent Reinhart, chief economist at Dreyfus and Mellon, concurs, telling Axios:
“The fact is, the Fed is close to or at the interest rate plateau. The exact height of the plateau doesn't matter that much because you can always compensate by how long you stay at it."
Yet, some think the Fed chief might remain true to his style of playing it close to the chest.
Joseph LaVorgna, chief economist at SMBC Nikko Securities America, said in comments carried by CNBC:
“I just think he’s going to play it about as down the middle as possible. That just gives him more optionality. He doesn’t want to get himself boxed into a corner one way or another.”
If Powell does take a noncommittal strategy, that will put the speech in the middle of, for instance, 2022's surprisingly aggressive — and terse — remarks warning of higher rates and economic “pain” ahead and 2020′s announcing of a new framework in which the Fed would hold off on rate hikes until it had achieved “full and inclusive” employment.
Gold futures’ most-active December contract on New York’s Comex settled at $1,947.10 per ounce on Wednesday, virtually flat on the day, before reaching a 10-day high of $1,945.55 in the latest session.
The spot price of gold, known by its symbol XAU and is more closely watched than futures by some traders, also settled barely changed at 1,916.60 per ounce — after a two-week high of $1,923.94 reached in the prior session.
The dollar Index, or DX, which pits the greenback against six other major currencies, was at 104.112 after a two-week high of 104.215 earlier in the session.
Yields on the U.S. 10-year Treasury note was at 4.257 at the time of writing, just off a one-week high at 4.26. Prior to that, yields hit a 16-year high of 4.366 earlier this week.
h3 Scenario 1: Stronger DX and Yields Vs. Gold:/h3Charts by SKCharting.com, with data powered by Investing.com
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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.
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