Daily Brief Aug 28 – Everything You Need to Know About Gold on Friday!
Arslan Butt • 3 min read
Happy Friday traders,
Today, in the Asian trading session, the prices for the yellow metal were able to put in bids around the $ 1,942 mark, but we are still waiting for a clear direction, after the previous day’s volatile trading, which crossed the $ 1,975 mark, before declining to $ 1,910. Let me remind you that the bullion had an exciting day, making a $ 65 move in almost 60 minutes, before the point when Federal Reserve Chairman Jerome Powell jostled market movements with his statements.
The speech by Federal Reserve Chairman Jerome Powell cited the Higher inflation tolerance and low-interest rates, which tended to undermine the broad-based US dollar and contributed to the gains in the yellow metal. Thus, the fresh weakness of the US dollar could be considered the major factor behind the run-up for gold, at least for now. On the contrary, the risk-on sentiment in the market, backed by the reports concerning the progress on the COVID-19 vaccine and the receding numbers of coronavirus cases in most countries, became the key factor that kept a lid on any further gains in the safe-haven assets.
Apart from this, the slight positive vibes over the US stimulus package discussion might cap further upside momentum for the yellow metal, boosting the US dollar. At the moment, the precious metal prices are trading at 1,942.80 and consolidating in the range between 1,923.39 and 1,945.34. However, traders are still cautious about placing any strong position ahead of the second day of speeches from Jackson Hole and second-tier data from the US.
The Jackson Hole Symposium, which has been looked forward to with great anticipation, started yesterday. At this event, Federal Reserve (Fed) Chairman Jerome Powell showed his willingness to offer the Average Inflation Targeting (AIT), which indicates the tolerance for higher inflation and prolonged low-interest rates. However, the move by the Fed boss was already largely anticipated, but it hinted at longer-run employment and inflation numbers being mostly downbeat, which suggested that the easy money will be here. This, in turn, undermined the broad-based US dollar and provided support to the yellow metal prices.
It is worth recalling that gold initially suffered losses, as long-term US Treasury yields hit their highest level in months, strengthening the dollar. But after downbeat US job data, which was released simultaneously, indicated that 1.006 million initial jobless claims were filed over the past week, the US dollar gains were capped, amid doubts over the recovery of the labor market.
Apart from the Fed, the global leaders are inching closer to an effective COVID-19 vaccine day by day, which keeps the market sentiment happy. Besides this, the receding virus figures in most of the countries also exerted a positive impact on the market trading sentiment. Another factor supporting the trading sentiment could be the talks concerning the US coronavirus (COVID-19) stimulus package. The US House Speaker Nancy Pelosi’s suggest further easing of the Democratic demand to around $ 2.2 trillion, although, the upbeat market sentiment has become the key factor that is preventing the gold prices from putting in any strong bids.
On the USD front, the broad-based US dollar failed to maintain its previous gaining streak, dropping on the day, as the rally from the US Federal Reserve’s new strategy, to increase employment, coupled with tolerance for higher inflation, wore off. Moreover, the losses in the US dollar could also be associated with the downbeat US job data, which eventually fueled worries about the recovery of the US labor market. However, the losses in the US dollar kept the gold prices higher, as the price of the precious metal is inversely related to the price of the US dollar. Meanwhile, the US Dollar Index, which tracks the greenback against a basket of other currencies, dropped by 0.20%, to 92.802, by 12:24 AM ET (5:24 GMT).
Looking forward, the second half of the Jackson Hole Symposium and the usual risk catalysts will be critical factors to watch on the day. Notably, the ongoing drama surrounding the US-China relations and updates about the US stimulus package will also be closely followed. In the meantime, investors will also be keeping an eye on the USD moves and coronavirus headlines, as they could play a vital role in the gold run-up.
Daily Support and Resistance
Pivot Point 1,938.86
There were dramatic movements in gold, after the release of Fed Chair Powell’s speech. The precious metal dipped to 1,910 after placing a high of around 1,980. For now, gold is trading within a wide range of 1,910 to 1,955. We may see prices for the yellow metal rising towards 1,946 and then further up, to 1,955. Overall, the trading bias remains slightly bullish. Good luck!