The price of gold fell near to two-month lows after the Economic Symposium in Jackson Hole. Will Yellen’s speech become a game-changer in the gold market?
On Friday, Yellen offered many interesting remarks on the U.S. economy. However, investors focused only on her expressed belief that “the case for an increase in the federal funds rate has strengthened in recent months”. Consequently, the market odds of interest rates hike this year increased, the U.S. dollar appreciated, while the gold prices declined. But is it a permanent change in the near-term outlook based on the fundamental information (how gold “should” move based on the fundamental details alone)?
Well, not necessarily. Gold has recently been very sensitive to the Fed’s open mouth operations and rate hike prospects. For example, last year, the elevated expectations of the Fed’s hike in September pushed the yellow metal down, but when the U.S. central bankers did not raise them in that month, the price of gold rebounded. Therefore, the short-term fundamental outlook depends now on whether the FOMC will hike interest rates in the next meeting and the accompanying message (whether it will be one-and-done move, at least for some time, or whether the next hike, perhaps in December, will not be excluded).
Yellen’s tone was definitely more hawkish than after the June FOMC meeting, when she wanted to make sure that the labor market remained robust. Since then, two strong payroll reports were released. Therefore, the August job report will weigh in on hike decision. If Friday's jobs number is strong, a rate hike in September will become even more likely, which will push the gold prices further down. However, one question arises: whether the Fed will be brave enough to raise rates before the U.S. presidential election in November? If the FOMC members convince investors that it would not be a problem, then the outlook for gold will be rather gloomy in the near future. If they do not and they chicken out again, then we will see a rebound in the gold market.
The bottom line is that the gold prices fell after the Yellen’s hawkish speech in Jackson Hole. The Friday’s strong non-farm payroll numbers could reinforce the case for interest rate hike in September. Hence, investors should brace for another declines in the gold market. However, if job gains disappoint, the market odds of hike in September will diminish and the shiny metal may catch its breath (that is unless non-fundamental factors don’t push gold lower anyway).
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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