(Kitco News) Gold market price action is taking a rest after hawkish comments from Fed speakers, as prices move further away from the $1,800 an ounce target.
Gold price jumped to a daily high of $1,805 an ounce Tuesday morning, spurred by heightened geopolitical tensions as House Speaker Nancy Pelosi landed in Taiwan amid China’s threats of “serious consequences” for her visit.
However, gold gave up all its daily gains after the aggressive comments from the Federal Reserve, as gold futures for December were trading at $1,777.10, down $10 on the day.
“Gold pared its gains after Wall Street became optimistic that tensions between the world’s two largest economies would spiral out of control,” said Edward Moya, chief analyst at OANDA. “A strong dollar is weighing on gold as well as the dollar’s decline over the past two weeks appears to be over.”
Chicago Fed President Charles Evans said on Tuesday that the US central bank is likely to continue using large rate increases until it sees inflation lower. Evans added that he did not rule out a 50 basis point increase in September.
“If you really think things haven’t improved … 50 (basic points) is a reasonable assessment, but 75 might also be fine. I doubt more will be requested,” he told reporters on Tuesday.
San Francisco Fed President Mary Daly spoke Tuesday, saying inflation remains a problem. The Daily newspaper said during an interview on LinkedIn that the Fed has a “long way to go” before it reaches its price stability targets, especially after inflation accelerated in June to 9.1% compared to last year. “We remain completely resolute and united,” she said.
Everything depends on future data, Daly added, echoing Fed Chairman Jerome Powell’s comments last week. “I’m really looking forward to seeing what this data tells us to see if we can change the pace of price hikes a little bit, or if we need to continue with the ‘huge increases,'” Daley said.
Evans and Daly were not voted on this year, but their comments reveal some behind-the-scenes thinking.
The hawkish comments come after the US central bank raised interest rates by 75 basis points last week for the second time in a row. At the time, Powell also stated that the US was not in a recession, which means an “extraordinarily large” rate hike may be in store in September, followed by a slowdown in tightening.
“I don’t think the US is currently in a recession. There are many areas of the economy that are doing very well. I would like to point out the very strong labor market. [It is] It is true that growth is slowing down… [But generally]and GDP figures [are] It has been greatly revised. Referring to the first reading of the second-quarter GDP report, Powell said that you tend to take the first GDP reports with caution.
On the data front, the evidence points to persistently problematic inflation numbers and a slowing economy.
This week, markets are still digesting the Fed’s favorite inflation measure – the PCE price index – which rose 6.8%, the largest annual increase since the 6.9% recorded in January 1982.
US GDP for the second quarter also contracted 0.9%, marking the second consecutive quarterly contraction and meeting the technical definition of a recession.
Going forward, Powell said he wants to make meeting-by-meeting decisions and stay away from providing clear guidance on the exact size of upcoming price hikes. There are two other types of inflation and employment data that will be released ahead of the Federal Reserve’s September meeting.
Moya noted that for gold, a strong US dollar will remain an obstacle to higher prices.
“The US dollar got a big boost as the latest round of Fed talk backs the idea that the interest rate differential will remain wide in favor of the dollar,” he said. “Geopolitical tensions could primarily draw safe haven flows into Treasuries and this will support the dollar. Gold is trying to be a safe haven again and this latest round of international risks on the outlook will allow us to learn quickly if it becomes one.”
For gold to see a marked change in trend and a sustained upward rally, the precious metal needs to trade above $1,800 an ounce, according to strategists at TD Securities.
“The risk-off tone prevailing in the market associated with US-China relations has further supported the yellow metal with modest haven flows,” they said on Tuesday. “However, for more significant short coverage from CTA trend followers, gold prices should close north at $1,820 an ounce to trigger a change in trend signals…we see risks that Fed speakers could counter market expectations early Fed Pivot In this sense, the gold markets are facing an enormous amount of reassuring length held by the support traders, who still hold the title as the dominant speculative force in gold.”
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