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USAGOLD/Peter Grant/08-22-17
Gold is consolidating at modestly lower levels, but still generally at the high end of the recent range. The yellow metal remains underpinned by elevated political and geopolitical risks, while today’s uptick in the dollar weighs.
German ZEW Economic Sentiment slid to 10.0 in August, below expectations of 15.5, versus 17.5. Waning confidence in Germany diminishes the likelihood of any imminent tapering by the ECB. The recent rise in the euro appears to have stalled for now, buoying the dollar in the process.
ECB President Mario Draghi will speak at the KC Fed’s Jackson Hole symposium on Friday. While his topic will be “Fostering a Dynamic Global Economy,” the market will hope to glean any clues as to whether the desire to slow the ggrowth of the balance sheet outweighs any concerns fostered by the incoming data.
I think both Draghi and Yellen — who peaks later on Friday — will likely stick with the respective scripts from recent policy meetings. Anticipated policy divergence or convergence will likely set the near-term path for the EUR-USD rate, which will obviously influence gold.
With a September rate hike by the Fed off the table and December looking increasingly questionable, Treasuries still seem undervalued relative to the current tightening prospects. If rates continue to retreat, so too shall the greenback.
Technically speaking, the dollar continues to look vulnerable. Key support in the dollar index is well defined by the low from May 2016 at 91.92. If that level gives way, there’s very little in the way of additional support until the 82.00/80.00 zone. That would imply potential for about another 10% decline in the greenback, which would provide a strong tailwind for gold.
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