(Kitco News) A strong US dollar is weighing on the precious metal ahead of the Jackson Hole economic symposium, with gold down more than $50 in the week.
It is not surprising to see gold react to the greenback’s strength, as it has been facing this particular hurdle for most of the summer with the Federal Reserve aggressively raising rates.
“The dollar is on fire. It is rising against all major currencies and is breaking out of key technical levels like a hot knife in butter,” said Mark Chandler, Managing Director of Bannockburn Global Forex. “Gold, which started the week near $1,800, is now testing support near $1,750.”
At the time of writing, December Comex gold futures were trading down 3% in the week at $1,763 an ounce.
Next week’s big catalyst will be Federal Reserve Chairman Jerome Powell’s keynote in Jackson Hole, titled ‘The Economic Outlook’, which is scheduled for Friday.
Markets are divided on whether the Fed will hike by 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% chance of a 75bps increase.
Bob Haberkorn, senior commodities broker at RJO Futures, told Kitco News that the market will watch for any change in the Fed’s stance on interest rates.
“The Fed will continue to line up on higher rates going forward. This is why gold is slow and steady right now. If something changes at the Jackson Hole symposium, it could significantly impact the gold market. But not expected Still, they can say something about a slowdown in the housing market or the retail sector,” Haberkorn said. “Overall, the stock market is not in a bad shape when it comes to rate hikes. Is the equity market telling us the Fed will not be as aggressive? The gold market tells us a different story as gold competes against Treasury yields. does.”
So far, the Fed has been fairly consistent in staying fresh despite some mixed signals from the latest Fed meeting minutes released this week, said Everett Millman, precious metals expert at Gainesville Coins.
Minutes of the FOMC meeting from July showed that Fed officials finally agree on the need to slow the tightening cycle. Still, he believes the Fed needs to look at how its rate hikes affect inflation.
“The Fed’s flurry is embedded in market expectations,” Millman said. “The Treasury yield is also rising again. One thing for gold, the real rate of interest is closely related to the price of gold. As expectations for higher rates deepen, gold will normalize, and the more neutral effect of real rates Right now, they are putting pressure on the price of gold.”
While it’s wise to wait for another round of inflation and employment data before making concrete estimates, ING’s chief international economist James Knightley is looking for a 50 bps move at the September Fed meeting.
“We currently support a 50bp move in September and November with a final 25bp increase in December, but should payrolls rise strongly again (350k+), and inflation moves upward, we will see a 75bp increase on 21 September likely to switch over,” Knightley said.
gold price level
John Weir, co-director of Walsh Trading, said any rally in gold prices is short-lived, with the $1,715 level coming into play if gold falls below $1,770 an ounce.
Haberkorn warned of lower prices ahead of next week’s Jackson Hole symposium, saying the US dollar could rise significantly. “It’s hard to rally for gold in this environment,” he said. “Gold support is near $1,720 and then at $1,700. Buying is going to take place below that level.”
It’s important to remember that even though the US dollar is up against its peers, it is still losing out to inflation, Millman noted. “The value of gold is intact and it is doing what it should have done,” he said.
Strong resistance is currently located at $1,800 an ounce. But on the support side, gold could drop to $1,600, Millman said. “In the short term, there is no solid floor until we reach $1,600. I don’t expect gold to end that year. But in the short term, below $1,700,” he said. There’s a risk.”
next week’s data
Tuesday: US New Home Sales
Wednesday: US durable goods order, 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
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