Price of Gold Fundamental Daily Forecast – Powell Has to Come Across as Dovish or Gold Will Sink

Gold is likely to rally if Powell is dovish, however, gains could be limited because traders have priced in the 25-basis point rate cut in September. Powell is going to have to go above or beyond the one rate cut in order to trigger a meaningful rally.
James Hyerczyk
Comex Gold

Gold futures are inching lower on Friday on light volume. Most of the major players are on the sidelines ahead of a speech by Federal Reserve Chairman Jerome Powell at the central bankers’ symposium at Jackson Hole, Wyoming at 14:00 GMT. Gold is in a position to post its worst week in nearly five months as the lack of clarity and conviction from the Federal Reserve has encouraged investors to book profits ahead of the speech.

At 09:23 GMT, December Comex gold is trading $1505.20, down $3.30 or -0.23%.

The reluctance of traders to chase this market higher ahead of Powell suggests they may be looking for value, which means we could see a steep correction into a value zone if Powell disappoints.

The tight trading range also indicates that traders have no idea what Powell is going to say.

Bullish traders are hoping Powell is dovish and strongly suggests the need for a rate cut in September and for multiple cuts over the next 12 months. This would put the Fed in line with the market, which is pricing in a 25-basis point cut for September and as many as 4 cuts over the next 12 months.

Gold bulls will be disappointed if Powell reiterates the message from the Fed monetary policy statement and its minutes that the 25-basis point rate cut in July was a “mid-cycle adjustment”.

“In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and implications for the economic outlook and that avoided any appearance of following a pre-set course,” the minutes stated.

The documents went on to say that “most participants” saw the quarter-point cut “as part of a recalibration of the stance of policy, or mid-cycle adjustment” in response to changing conditions.

Daily Forecast

Gold is likely to rally if Powell is dovish, however, gains could be limited because traders have priced in the 25-basis point rate cut in September. Powell is going to have to go above or beyond the one rate cut in order to trigger a meaningful rally.

If Powell comes across as somewhat hawkish, or doesn’t put out the need for a rate cut in September, gold prices could plunge.

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