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Gold prices lower as Powell says no 'premature' easing policy

2022-08-29

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Spot gold fell 1.2% to $1,738.14 an ounce, falling for a second straight week. Federal Reserve Chairman Jerome Powell said in a speech at Jackson Hole that the U.S. economy needs tighter monetary policy until inflation is under control; that could mean slower growth, but gave no hint of what the Fed might do at its September policy meeting.

According to the U.S. Commodity Futures Trading Commission (CFTC) data, as of August 23, the speculative net long position in COMEX gold futures decreased by 15,910 contracts to 30,326 contracts, the second consecutive weekly decline. Speculators have increased their net-long bets on the dollar in the latest week. The net long dollar position rose to $13.79 billion in the week ended Aug. 23 from $13.37 billion the week before.

Gold prices lower as Powell says no 'premature' easing policy

Inflation will ease in the coming months as commodity prices fall, supply chain tensions improve, and earlier Fed rate hikes hit housing markets and other sectors. Recent inflation data show a marked slowdown in price growth: CPI did not rise at all in July, and the Fed's preferred inflation gauge, the PCE, showed consumer prices fell in July. However, he said: "While July's lower inflation reading is welcome, the one-month improvement is well below what the Committee needs to see before it is confident that inflation has fallen."

Home sales have plummeted since the Fed first signaled it would raise borrowing costs. But the macro aspect is still full of contradictions. Inflation remains alarmingly high compared to the Fed's 2% target, and the U.S. economy has contracted for two consecutive quarters, but employers are still hiring at a rapid pace and the number of people seeking unemployment assistance remains relatively low.

Given the misjudgment of the outlook for higher prices during the previous prolonged period of subdued inflation, the Fed may now have no choice but to maintain its policy of continuing to raise interest rates sharply, even if a moderate recession in this cycle of interest rate hikes is acceptable, because in the Fed's view In the future, the cost of runaway inflation will be higher, and the future risks will also be greater. The Covid-19 pandemic has caused supply shortages of semiconductors and other components, as well as labor, to persist to this day.

Gold is considered a hedge against economic risk, but rising interest rates have eroded the appeal of the non-yielding asset. Philip Streible, chief market strategist at BlueLine Futures, said that without Powell making a dovish turn, gold will continue to be under pressure as it has to deal with higher interest rates; but Standard Chartered analyst Suki Cooper said in a report, While gold is likely to trend lower in the coming months, most of the downside risks have been priced in.

Commerzbank economists report: “Despite the recent recovery in gold prices, there are no signs of any long-term gains. Continued ETF outflows, a still-strong dollar and expectations of Fed rate hikes hinder this. 75 basis points of interest rate increases, then prices will fall again.”

Gold prices are likely to fall below $1,700 an ounce next week. Gold prices won't rise significantly until it is certain that the Fed will reverse policy, which is unlikely until later in 2023. There will be strong support around $1,690-$1,700, but a drop to $1,600 would not be surprising if this level is breached. Buyers are expected to enter around the $1,690 level.

The gold daily K-line chart shows:

The short-term downtrend remains volatile. The market has not yet shown signs of continuous reversal and upward movement. The top suppresses focus on the vicinity of 1787, the low-level support focuses on the vicinity of 1703, the MACD indicator is at the lower side of the 0 axis, and the RSI indicator is below the 50 equilibrium line. Narrow side finishing;

[Disclaimer] This article only represents the author's own point of view and does not constitute any investment advice. Please read it for reference only, and bear all risks and responsibilities.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Gold prices lower as Powell says no 'premature' easing policy ​​

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Gold prices lower as Powell says no 'premature' easing policy