Gold closed the week with more than $50 loss as a strong US dollar weighed on the precious metal ahead of the Jackson Hole economic symposium. Analysts interpret the latest developments in the market and share their forecasts.
“Dollar is on fire and crosses important technical levels”
It’s not surprising to see gold reacting to the strength of the dollar. Because, cryptocoin.com As you follow, most of the summer passed with the Fed aggressively raising interest rates. Yellow metal faced this particular hurdle. Marc Chandler, managing director of Bannockburn Global Forex, comments:
The dollar is burning. It rises against all major currencies and surpasses key technical levels. Starting the week around $1,800, gold is currently testing support around $1,750.
“The gold market tells us a different story”
The biggest catalyst for next week will be Fed Chairman Jerome Powell’s keynote at Jackson Hole, entitled ‘Economic Outlook’ scheduled for Friday. Meanwhile, markets are divided over whether the Fed will raise 50 or 75 basis points at its September meeting. CME’s FedWatch Tool shows a 56.5% probability of a 50bps increase and a 43.5% probability of a 75bps increase.
Markets will eagerly watch for any change in the Fed’s stance on interest rates, RJO Futures senior commodity broker Bob Haberkorn said in a statement. Haberkorn notes that the Fed will probably keep the line at higher interest rates in the future. That’s why he states that gold is currently falling slowly and steadily. Haberkorn further explains his views as follows:
If there is a change at the Jackson Hole symposium, it is possible that it will have a significant impact on the gold market. But the markets do not expect this. Still, they’re likely to say something about the recession in the housing market or the retail industry. Overall, the stock market is not in bad shape given the talk of rate hikes. Is the stock market telling us the Fed won’t be that aggressive? The gold market tells us a different story. Because gold competes with Treasury yields.
“Right now they are putting a damper on the gold price”
Gainesville Coins precious metals expert Everett Millman says the Fed has been pretty consistent in staying hawkish so far, despite some mixed signals from the minutes of its latest meeting released this week. Minutes from July’s FOMC meeting showed Fed officials finally agreed on the need to slow the tightening cycle. Still, they believe the Fed needs to see how rate hikes affect inflation. Millman comments on the subject as follows:
The Fed’s hawk is embedded in market expectations. Treasury yields are also rising again. There’s a thing for gold here. Because the real interest rate has a strong correlation with the gold price. Gold will normalize as expectations for higher rates deepen. Also, real interest rates will have a more neutral effect. They are putting a damper on the gold price right now.
James Knightley expects 50 bps move from Fed in September
It’s wise to wait for a new round of inflation and employment data before making concrete forecasts. However, ING International Chief Economist James Knightley expects a 50 basis point move at the Fed meeting in September. Knightley explains the reason for this prediction as follows:
We are currently in favor of 50 basis points moves in September and November, and a 25 basis point increase in December last year. But if payrolls rise again strongly (350k+) and inflation rises, a 75bps increase is likely on September 21st.
“Gold price rally is short-lived”
Walsh Trading co-director John Weyer notes that any gold price rally is short-lived. Therefore, he adds that if gold falls below $1,770, the $1,715 level will come into play.
“It is difficult for gold to rally in this environment”
Bob Haberkorn warns of lower prices ahead of next week’s Jackson Hole symposium. He adds that the US dollar could rise significantly. According to Haberkorn, it is difficult for gold to rally in this environment. In this context, the analyst said, “Gold support dropped to around $1,720 and then to $1,700. There will be purchases below this level,” he says.
“There is no solid base in the short term”
Everett Millman reminds us that although the US dollar appreciated against its peers, it still lost against inflation. According to Millman, gold holds its value and does what it’s supposed to do. Strong resistance is currently at $1,800. On the support side, however, he adds that gold could drop to $1,600. “There is no solid bottom until we hit $1,600 in the short term,” Millman said. I do not expect gold to close the year this low. However, there is a downside risk below $1,700 in the short term.
Next week’s data
- Tuesday: US new home sales
- Wednesday: US durable goods orders, US pending home sales
- Thursday: US Q2 GDP revision, US jobless claims, ECB minutes
- Friday: Powell’s speech at Jackson Hole, US PCE price index, Michigan consumer sentiment
