- Gold ended markets last week on a high, up around 2.5% on business commencing last Monday after posting six weeks of losses in a row.
- Spot gold reached a high of $1,208.52 as the dollar continued to unwind on fundamentals that may have signalled the turning point for the yellow metal.
Gold has been on the back foot despite ample risk-off undertones that would usually drive investors to gold’s safe haven qualities. However, the dollar has been the preferred medium instead whereby trade wars were seen to be dollar positive – This was on the basis that China is returning fire which was presumed to drive inflation on higher import costs due to Chinese tariffs, overheating the US economy and force the Fed to raise rates more rapidly.
However, there is another side of the coin that has been exposed after the Jackson Hole which has weighed further on the greenback that had already started to give back some ground on the optimism that the US and China would bring this dispute into a truce – (although it now seems that there is not going to be an easy solution so soon – Bloomberg reports today “Trump’s China Hawks Prepare to Swoop as Trade Talks Go Nowhere”, claiming that the trade war “is about to get uglier” as the US is “set to unleash a fall offensive”).
Fed Powell gave a speech on Friday at the Jackson Hole less which shows that he is less optimistic about the US economy on the longer end. He argues that gradual U.S. interest-rate hikes remain appropriate and that there was no risk to the economy overheating. He also said he was prepared to do “whatever it takes” if inflation becomes unanchored to the upside or downside “or should crisis threaten again.”
Dovish undertones from Powell at Jackson Hole – TDS
Gold prices punched higher Friday to score their first weekly advance in seven weeks as the U.S. dollar extended losses in the wake of a closely followed speech from Federal Reserve Chairman Jerome Powell.
The U.S. dollar weakened sharply, providing support for dollar-denominated gold prices, as Powell, at the annual Fed symposium in Jackson Hole, Wyo., said gradual U.S. interest-rate hikes remain appropriate and there was no risk to the economy overheating. He also said he was prepared to do “whatever it takes” if inflation becomes unanchored to the upside or downside “or should crisis threaten again.” Overall, the comments were taken as somewhat dovish and with a number of structural challenges that the US economy faces, including unsustainable federal budget deficit, adverse demographics, lack of economic mobility and low productivity, the US yield curve is a common theme in markets again which is weighing heavily on the dollar, and what the dollar giveth, the dollar taketh away and hence gold can keep on going in its correction in this renewed climate where the markets thinking has suddenly been reset.
Gold levels
On a technical basis, the price has upside has also moved into a brighter spot – above the descending resistance, the 21-D SMA and it has pierced into space through the prior daily support levels above 1204. to really convince a market that is otherwise heavily short of the gold and to reconsider its positioning, (net speculative short positions, or bets an asset’s price will fall, in gold are up 275% year to date), 1224 and then the 200-W SMA at 1233 are key. A retry of the downside should target 1146/22 monthly levels.
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