Gold wraps itself round US$1,800 as traders await Jackson Hole

A weekly market summary for gold, Aug 23-27

Aug 28, 2021

Avtar Sandu

The writer is senior manager, commodities, Phillip Futures


GOLD prices spent most of the week around the US$1,800 psychological level, wedged between two major technical moving averages. With the symposium of central bankers, policymakers and economists looming at Jackson Hole, investors would rather await the outcomes from the annual event and let prices drift within from the twilight zone between the narrow 50-day and 200-day EMAs.

Gold started the week on a buoyant note, rushing to a two-week high to cross over the 50-day EMA and US$1,800 handle on Monday as a retreat in the dollar pushed investors to bullion. Rising Delta variant coronavirus cases had driven expectations that the US Federal Reserve might delay tapering of assets purchases. Prior to the breakout of prices, gold prices have gone back and forth during the course of the previous week below the 50-day EMA in an extremely tight range.

There have been other key themes that investors paid attention to this week. US President Joe Biden rejected pleas from allies in the Group of Seven, saying he was sticking with his Aug 31 deadline to fully exit Afghanistan, amid an increasingly deteriorating security situation in Afghanistan and a suicide bomb attack in Kabul. Meanwhile, in a world overwhelmed by Covid's Delta variant, infections continue to rise.

Technical analysis for Comex December Gold Futures (GCZ21)

After the spectacular recovery of gold prices preceding the sell-off in mid-August, gold traders took a breather. Since then, gold has made only one significant eye-catching move of US$30 when it broke above the 50-day EMA and the US$1,800 resistance simultaneously.

The benchmark December gold hugged the US$1,800 handle, with prices bubbling not too far away from it and the 50-day EMA. So, it was not too unexpected that the GC contract left the 200-day EMA resistance at US$1,820 untested. Yet as the adage goes, there is calm before the storm. Do expect some volatility to emerge out of Jackson Hole.

A hawkish Fed would induce heavy selling which would collapse prices below US$1,680 to breach the major "double bottom" pattern formed in March. The breach would be considered an indication of the resumption of the bear trend, and may bring the gold market to test the next major support at US$1,550 an ounce. A hawkish Fed points to higher interest rates which benefits other instruments which unlike gold, are interest bearing.

If the Fed continues to hang on to an overtly dovish stance, gold prices would appreciate. A clear break above the 200-day EMA couple with heavy volume of trade may provide the technical clue needed to convince traders that it is in a rally mode again. The 200-day EMA is at US$1,820. The next resistance level is at US$1,839, followed by US$1,860, then the psychological US$1,900 and US$1,923 levels. But a breakout to the top side could also bring about a renaissance of the dollar and take away the shine from gold.