Gold consolidates as investors await Powell’s speech at Jackson Hole
- Gold price trades sideways as investors shift focus to the speech from Fed Powell at Jackson Hole.
- The market mood remains jittery as to whether Jerome Powell will deliver hawkish interest rate guidance or favor a neutral policy.
- Business spending on capital goods rose by 0.1% in July, swinging from a contraction of 0.4% recorded for June.
Gold price (XAU/USD) demonstrates a rangebound performance as investors await Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium for further guidance. The precious metal is expected to remain on tenterhooks as the market mood remains uncertain as to whether Jerome Powell will deliver hawkish interest rate guidance or discuss the benefits of keeping interest rates unchanged for a longer period. Market participants would also like to know how much longer the Fed will keep interest rates elevated.
Fed policymakers: Boston Fed Bank President Susan Collin and Philadelphia Fed Bank President Patrick Harker commented on Thursday that the current interest rate level is enough to do the required job. The US economy is still resilient due to a tight labor market and easing inflation, but further policy-tightening by the Fed could dampen market sentiment.
Daily Digest Market Movers: Gold price continues to juggle ahead of Jackson Hole Symposium
- Gold price turns sideways above $1,910.00 ahead of Fed Chair Jerome Powell’s commentary at Jackson Hole Symposium.
- The uncertainty about Powell’s commentary at Jackson Hole has sidelined investors, however, the strength in the US Dollar indicates that the statement could be on the hawkish side.
- The US Dollar Index (DXY) extends its recovery to near 104.26, printing a fresh 11-week high as the US economy is resilient while other G7 economies’ growth is shrinking.
- Strength in the US Dollar Index also came from lower weekly jobless claims released on Thursday and deepening fears of a slowdown in the Chinese economy.
- The US Department of Labor reported on Thursday that individuals claiming jobless benefits for the first time rose to 230K, lower than expectations and the former reading of 240K for the week ending August 18.
- Gold price upside remains restricted as US Treasury yields rebounded after a downside move. The 10-year US bond yield recovered to near 4.26%.
- Mixed responses from market participants discern whether Powell will provide a time period for how long interest rates will remain stable at elevated levels or if the central bank consider further interest rate hikes.
- Investors will also focus on plans about how the Fed will shred the excess inflation and the outlook for the US economy for the second half of 2023.
- Meanwhile, Fed policymakers delivered neutral interest rate guidance on Thursday.
- Boston Fed President Susan Collins commented that interest rates are at a point where the Fed doesn’t need to raise them further. However, the option of further policy tightening will remain open.
- Philadelphia Fed Bank President Patrick Harker supports sustaining interest rates at the 5.25% to 5.5% range. Harker sees no rate cuts this year.
- US preliminary PMI for August reported by S&P Global on Wednesday indicated that the economy is losing its resilience due to higher interest rates and a deteriorating demand outlook.
- Vulnerable PMIs for August cast doubts over the growth rate in the third quarter. Firms are banking on lower operating capacity due to rising cost inflation.
- On Thursday, the US Census Bureau reported Nondefense Capital Goods Orders expanded by 0.1% in July as expected by investors, contracting from 0.4% in June.
- Going forward, investors will also focus on five-year consumer inflation expectations for August, which will be published at 14:00 GMT.
Technical Analysis: Gold price oscillates above $1,910
Gold price demonstrates a volatility contraction phase above $1,910.00 ahead of the Jackson Hole Symposium. The precious metal struggles to continue its five-day winning spell amid a recovery in US Treasury yields. The yellow metal tussles with resistance to climb above the 20-day Exponential Moving Average (EMA) around $1,915.00 but has broken confidently above the 200-day EMA.
The Relative Strength Index (RSI) (14) has climbed into the 40.00-60.00 range, which indicates that the bearish impulse has faded.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.