New Reporter
31-08-20, 20:02
GOLD REPORT
Gold whipsaws on US Federal Reserve's inflation shift
A weekly market summary for gold, Aug 24-28
Sat, Aug 29, 2020
Avtar Sandu
THE gold market spent the week awaiting the US Federal Reserve's Jackson Hole annual symposium on Thursday. Gold prices were bubbling around aimlessly within an US$80 range as the market watched to see if Fed chair Jerome Powell would continue to signal that the Fed would maintain its extremely easy monetary policies.
Earlier in the week, the German government gave gold prices a boost when it announced that to stimulate their economy, it would allocate an additional 10 billion euros to provide job subsidies until the end of 2021. The French Prime Minister also said that he would provide details for a 100 billion euro stimulus plan for France next week.
The Fed chair's speech on Thursday, though not totally surprising in content, was significant in that it indicated a policy shift on inflation. Mr Powell said the Fed will allow a faster pace of inflation, and that the FOMC would target "inflation that averages 2 per cent over time" and will aim to bring inflation above the 2 per cent target following periods when inflation runs below that level. The Fed chair also mentioned that the Fed would act "if excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal".
The change means that borrowing rates for households and businesses will likely remain ultra-low for years to come, and low interest rates are positive for gold.
What should investors look out for in the longer term?
The US policy shift would likely hold for a few years. With the shift to place more emphasis on jobs and economic growth in the US and less worries about higher inflation, it is more likely that US bond yields would appreciate and reduce the allure of gold as an asset.
Though we would likely continue to live in a low interest rate environment for longer, inflation could pick up, which would then be positive for gold as an inflation hedge.
An effective Covid-19 vaccine is still not available, and the possibility of a second wave, or another resurgence of the virus especially in the northern hemisphere with the coming winter, would strengthen the appeal of gold. However, the availability of an effective vaccine that could be produced on a mass scale can cause a change in outlook for many asset classes including gold.
Technical Analysis for Comex December Gold Futures (GCZ20)
The gold market has been consolidating ever since it briefly broke below US$1,900. Short-term technical indicators on the daily charts are bearish. The 14-day RSI is below the mid-50 levels. Prices have not been able to go below the 20-day SMA, indicating short-term bearish pressure. Medium-term momentum is also bearish. However, the MACD (moving average convergence divergence) index has a trajectory that is approaching oversold levels with a trajectory that is tapering. Long-term indicators are still in bullish mode.
For the Comex GC Dec 20 contract, the resistance at US$2,025 remains intact, initial resistance lies at US$1,981 and US$1,986. The support level is at US$1,910 at the 50-day SMA. Stronger support is at the recent low of US$1,874 and then US$1,820 and US$1,800.
The writer is senior manager, commodities, Phillip Futures
Gold whipsaws on US Federal Reserve's inflation shift
A weekly market summary for gold, Aug 24-28
Sat, Aug 29, 2020
Avtar Sandu
THE gold market spent the week awaiting the US Federal Reserve's Jackson Hole annual symposium on Thursday. Gold prices were bubbling around aimlessly within an US$80 range as the market watched to see if Fed chair Jerome Powell would continue to signal that the Fed would maintain its extremely easy monetary policies.
Earlier in the week, the German government gave gold prices a boost when it announced that to stimulate their economy, it would allocate an additional 10 billion euros to provide job subsidies until the end of 2021. The French Prime Minister also said that he would provide details for a 100 billion euro stimulus plan for France next week.
The Fed chair's speech on Thursday, though not totally surprising in content, was significant in that it indicated a policy shift on inflation. Mr Powell said the Fed will allow a faster pace of inflation, and that the FOMC would target "inflation that averages 2 per cent over time" and will aim to bring inflation above the 2 per cent target following periods when inflation runs below that level. The Fed chair also mentioned that the Fed would act "if excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal".
The change means that borrowing rates for households and businesses will likely remain ultra-low for years to come, and low interest rates are positive for gold.
What should investors look out for in the longer term?
The US policy shift would likely hold for a few years. With the shift to place more emphasis on jobs and economic growth in the US and less worries about higher inflation, it is more likely that US bond yields would appreciate and reduce the allure of gold as an asset.
Though we would likely continue to live in a low interest rate environment for longer, inflation could pick up, which would then be positive for gold as an inflation hedge.
An effective Covid-19 vaccine is still not available, and the possibility of a second wave, or another resurgence of the virus especially in the northern hemisphere with the coming winter, would strengthen the appeal of gold. However, the availability of an effective vaccine that could be produced on a mass scale can cause a change in outlook for many asset classes including gold.
Technical Analysis for Comex December Gold Futures (GCZ20)
The gold market has been consolidating ever since it briefly broke below US$1,900. Short-term technical indicators on the daily charts are bearish. The 14-day RSI is below the mid-50 levels. Prices have not been able to go below the 20-day SMA, indicating short-term bearish pressure. Medium-term momentum is also bearish. However, the MACD (moving average convergence divergence) index has a trajectory that is approaching oversold levels with a trajectory that is tapering. Long-term indicators are still in bullish mode.
For the Comex GC Dec 20 contract, the resistance at US$2,025 remains intact, initial resistance lies at US$1,981 and US$1,986. The support level is at US$1,910 at the 50-day SMA. Stronger support is at the recent low of US$1,874 and then US$1,820 and US$1,800.
The writer is senior manager, commodities, Phillip Futures