(Kitco News) Gold is ending the week down more than $50 as a strong US dollar weighs on the precious metal ahead of the Jackson Hole economic symposium.
It is not surprising to see how gold reacts to the strength of the dollar as it has faced this particular hurdle for most of the summer with the Federal Reserve aggressively raising rates.
“The dollar is on fire. It’s rallying against all major currencies and cutting through key technical levels like a hot knife through butter,” Bannockburn Global Forex managing director Marc Chandler said. “Gold, which started the week near $1,800, is testing support near $1,750 now.”
At the time of writing, December Comex Gold Futures They were trading at $1,763 an ounce, down 3% on the week.
The big catalyst for next week will be Federal Reserve Chairman Jerome Powell’s Jackson Hole keynote address titled “Economic Outlook,” which is scheduled for Friday.
Markets remain divided on whether the Fed will raise rates by 50 basis points or 75 basis points at its September meeting. CME’s FedWatch tool shows a 56.5% chance of a 50bp rise and a 43.5% chance of a 75bp rise.
Markets will be watching for any changes in the Fed’s stance on rates, Bob Haberkorn, senior commodity trader at RJO Futures, told Kitco News.
“The Fed is likely to hold the line on higher rates going forward. That’s why gold is slowly and steadily falling right now. If there is any change at the Jackson Hole symposium, it could significantly affect the gold market. But that is not anticipated. However, they could say something about the downturn in the real estate market or the retail sector,” Haberkorn said. “Overall, the stock market is not in a bad shape considering the rate hike rumor. Is the stock market telling us that the Fed won’t be as aggressive? The gold market tells us a different story because gold competes with Treasury yields.”
So far, the Fed has been fairly consistent in staying hawkish despite some mixed signals from the latest Fed meeting minutes released this week, Gainesville Coins precious metals expert Everett Millman said.
Minutes from the July FOMC meeting showed that Fed officials agree on the need to slow down the tightening cycle over time. Still, they believe the Fed needs to see how its rate hikes affect inflation.
“The Fed’s aggressive attitude is embedded in market expectations,” Millman said. “Treasury yields are also rising again. One thing for gold is that the real interest rate has a strong correlation with the price of gold. As expectations of higher rates become more deeply embedded, the Gold will normalize and real rates will have a more neutral impact. Right now, they are holding back the price of gold.”
While it is prudent to wait for another round of inflation and employment data before making any concrete estimates, ING’s chief international economist James Knightley is looking for a 50bp move at the September Fed meeting.
“Currently we are in favor of 50bp moves in September and November with a final 25bp increase in December, but if payrolls rise strongly again (350k+) and inflation picks up then we will probably switch to a 75 bp on September 21,” Knightley said. .
gold price levels
Any gold price rally has been short-lived, Walsh Trading co-head John Weyer said, adding that if gold falls below $1,770 an ounce, the $1,715 level comes into play.
Haberkorn warned of lower prices next week ahead of the Jackson Hole symposium, adding that the US dollar could rise significantly. “It’s hard for gold to recover in this environment,” he said. “Gold support is around $1,720 and then it goes down to $1,700. There will be buying below that level.”
It’s important to remember that even though the US dollar is outperforming its peers, it is still losing to inflation, Millman noted. “Gold holds its value and is doing what it’s supposed to do,” he said.
Strong resistance is currently at $1,800 an ounce. But on the support side, gold could fall to $1,600, Millman added. “In the short term, there is no solid floor until we get to $1,600. I don’t expect gold to end the year that low. But in the short term, there is downside risk below $1,700,” he said.
Next week’s data
Tuesday: US New Home Sales
Wednesday – US Durable Goods Orders, Pending US Home Sales
Thursday: US Q2 GDP Revision, US Jobless Claims, ECB Minutes
Friday: Powell Jackson Hole Speech, US PCE Price Index, Michigan Consumer Confidence
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