Where Is Gold Headed?

The PBOC (People’s Bank of China) injects funds into the financial system via a reverse repo operation for the first time since February. Equity market reaction appears muted after Wall Street only sees small gains.  US major indices traded at record levels and European stock benchmarks were mixed, while the dollar firmed as traders tweaked US rate rise expectations. Australia’s S&P/ASX 200 inched up 0.1 per cent, although investors were kept busy with results as Qantas reported record underlying profit, and Wesfarmers, the supermarket-to-coal conglomerate that recently bought UK DIY retailer Homebase, saw net profit drop 83 per cent owing to A$1.8bn of asset impairments.

In Asia, equity markets were quiet this morning. Hong Kong’s Hang Seng fell 0.8 per cent, while on the Chinese mainland the Shanghai Composite eased 0.1 per cent on profit-taking in financials, though the tech-focused Shenzhen Composite was up 0.3 per cent.

The additional evidence of an improving housing market has encouraged some investors to shorten the odds on whether the Federal Reserve will increase borrowing costs in the coming months.

The probability of the Fed lifting rates in September has risen to 28 per cent, from 22 per cent a week ago, according to Bloomberg’s interpretation of futures markets. Gold, which is sensitive to monetary policy expectations, plunged $11 to $1,326 an ounce yesterday. Gold lost some sparkle as investors took a cautious approach ahead of the Jackson Hole meeting on Friday.

Unless there is major recovery after the meeting, it puts gold on course for its first monthly decline since May.

Speculation over the timing of a US interest rate rise has been the main reason gold has slipped recently though it is still 25% higher year-to-date.

Markets are currently pricing in around a 20% chance of a rate rise next month with a rise in December being seen as an even bet.

A rate hike may be justified some Fed members have suggested if the US jobs markets continues to grow at the pace seen recently, though Federal Reserve chair Janet Yellen is seen as being in the dovish camp. Yellen is a key note speaker at the meeting of central bankers in Wyoming.

Other precious metals were dragged lower by the dip in the gold price. Silver eased to 18.61 while platinum tumbled to 1,084.

Investors have mostly held off on big bets on Wall Street ahead of comments from Fed Chairwoman Janet Yellen at the central bank’s retreat at Jackson Hole. Yellen’s speech will be closely watched for hints about U.S. monetary policy and the path of interest rates.

Gold has been consolidating for most of the summer with resistance sloping downward at the aforementioned trend line…and support coming in near 1,310. Gold spiked as high as 1,318 on June 16. September coming up is the single strongest month of the year for gold based on data available for monthly trends. Much of this demand comes out of India prior to the traditional wedding season, which is in October.