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James Hyerczyk
Gold and Cash Reserves

Gold futures are trading lower on Thursday shortly before the regular session opening. The market is once again posting an inside move that suggests investor indecision and impending volatility. Yesterday’s muted reaction to the Fed minutes also suggests investors are keeping their powder dry ahead of Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole central bankers’ symposium on Friday.

At 09:29 GMT, December Comex gold is trading $1508.90, down $6.80 or -0.46%.

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Fed Minutes Reveal Nothing New

The minutes of the Fed’s July meeting, released at 18:00 GMT on Wednesday, showed Federal Open Market Committee (FOMC) members were divided over whether to cut interest rates, but were united in wanting to signal they were not on a preset path to more easing.

The summary indicated that policymakers viewed the move as a “mid-cycle adjustment,” an expression Powell used in a press conference afterward that was seen as contributing to a stock market sell-off after the July 30-31 meeting.

“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 its implications for the economic outlook and that avoided any appearance of following a pre-set course,” the minutes stated.

The minutes 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.

“A number of participants suggested that the nature of many of the risks they judged to be weighing on the economy, and the absence of clarity regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook,” the minutes said.

The minutes noted that “a couple” members wanted a 50 basis point cut, based primarily on weak inflation readings. At the same time, “several” sought no move considering that risks had “diminished” since the June meeting.

The minutes said those who voted in favor of the cut felt it would “better position the overall stance of policy to help counter the effects on the outlook of weak global growth and trade policy uncertainty, insure against any further downside risks from those sources, and promote a faster return of inflation to the Committee’s 2 percent symmetric objective than would otherwise be the case.”


Daily Forecast

We expect to see modest moves in the gold market today ahead of Powell’s speech on Friday. Based on yesterday’s brief inversion in the bond market following the release of the Fed minutes, it’s clear that bond investors still fear the Fed will not be aggressive enough in its rate cutting to save the economy.

The current price of gold reflects the market pricing in a 25-basis point rate cut in September. So Powell is going to have to show that the Fed is willing to cut further in October or December to generate another surge in gold prices.

Furthermore, if Powell is extremely dovish, stocks may explode to the upside. This could help limit gains in the gold market. Essentially, gold is going to be a little trickier to trade than the other markets since gains could be limited or prices could go down if Powell is too hawkish, or too dovish. He has to hit it just right to support a rally.

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