Price of Gold Fundamental Weekly Forecast – Traders Bracing for Fed Chief Powell’s Speech on Thursday

Gold could be under pressure this week if recession fears continue to subside. There aren’t many major economic events this week so if there is volatility, it will likely be fueled by unexpected events by China or the United States. The key market moving event could take place on Thursday when Federal Reserve Chairman Jerome Powell delivers opening remarks at the Jackson Hole Economic Policy Symposium.
James Hyerczyk
Comex Gold

Gold futures finished higher last week, hitting a multi-year high at $1546.10 in the process. Despite the higher close, the price action can best be described as sideways-to-slightly higher. Furthermore, the range of the week was formed in one trading session with a potentially bearish closing price reversal top on the daily chart, created in the process.

If you are following the weekly closes then you have a bullish perspective. After all, all a market needs is a higher-high and a higher-low to continue an uptrend. But if you are watching the day-to-day price action then you have to be a little worried about the strength of the buying. It seemed very tentative most of the week.

Last week, December Comex gold settled at $1523.60, up $15.10 or 1.00%.

Recession Fears Drove Prices Higher Early in Week

Recession fears were raised earlier in the week after the bond market flashed a troubling signal about the U.S. economy. This increased worries over lower future demand. The fears were triggered when the yield on the benchmark 10-year Treasury note briefly broke below the two year rate, “an odd bond market phenomenon that has been a reliable indicator of economic recessions,” according to CNBC.

A recession occurred, on average, 22 months after the inversion, Credit Suisse research showed. Nonetheless, investors bailed out of higher risk assets while seeking shelter in Treasurys, the Japanese Yen and gold.

Recession Fears Subsided Later in Week

Gold felt some pressure late in the week as Treasury yields firmed, stocks rose and the U.S. Dollar strengthened as stronger-than-expected U.S. economic data eased fears that the U.S. economy could be headed for a recession.

The key news keeping a lid on gold prices was the stronger-than-expected U.S. July Retail Sales report. It helped dampen financial markets’ fears that the U.S. economy was heading into recession.

The U.S. Dollar strengthened, driving down demand for dollar-denominated gold, on the bullish retail sales news and as the Euro weakened on expectations of central bank stimulus.

The Euro fell on growing expectations of an interest rate cut by the European Central Bank (ECB) after Governing Council member Olli Rehn suggested on Thursday that the central bank could restart its quantitative easing program and was open to extending it into equity purchases.

Weekly Forecast

Gold could be under pressure this week if recession fears continue to subside. There aren’t many major economic events this week so if there is volatility, it will likely be fueled by unexpected events by China or the United States. Furthermore, I think by now, gold investors get the fact that central banks are dovish. So they are in the “tell me something that I don’t already know” mode.

The key market moving event could take place on Thursday when Federal Reserve Chairman Jerome Powell delivers opening remarks at the Jackson Hole Economic Policy Symposium.

Powell is expected to address the volatile stock market swings and the recent bearish bond yield inversion. If he shrugs off these events then we could see a wicked reaction in the financial markets.

Basically, Powell is going to have to say something about the Fed acting aggressively to stem a potential global recession and prevent it from reaching the United States.

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