“Confusion ball, oh yeah, that’s what the world is like today”
The Federal Reserve’s monetary policy cloudiness regarding inflation and the timing of rate cuts and hikes are weighing heavily on the minds of traders and market participants.
Today, MarketWatch reported that Ricardo Evangelista, senior analyst at ActivTrades, wrote: “Markets appear increasingly disrupted by the Fed’s taboo on inflation, with a growing number of investors considering that the Central bank ambiguity, mixing a new hawkish stance with accommodating statements from some officials will ultimately result in higher interest rates sooner than expected. In addition, he said, “such a scenario will support the dollar and provide more turbulence for bullion, which could” therefore generate more short-term losses for gold. “
The main question is whether the recent rise in inflation is largely transient or lasting. The Fed maintains that a large percentage of the current (high) inflation rate is transient, citing supply chain and employment issues as companies reopen in the United States. While it is evident that the spikes in inflation that have led to shortages in the supply chain, such as rising prices for new and used cars, are due to chip sorting, are temporary, a rising energy and food prices could certainly be more sustainable.
The PCE (Personal Consumption Expenditure Price Index) is currently at 3.9% (the Federal Reserve’s price index used to determine the current rate of inflation) nearly double the 2% target of the Federal Reserve. The Federal Reserve has said it will let inflation soar. However, it is well above their current acceptable (hot) levels of between 2% and 3% per year. Note that this index excludes both energy and food costs.
A more realistic indicator of current inflation is the CPI (consumer price index) which is now at 5% last month. This index measures the average change over time in the price paid by urban consumers for a basket of consumer goods and services that includes both energy and food costs.
That being said, gold prices remain under great pressure as market participants are active sellers as yields on government debt instruments have increased. The increase in yields as well as the strength of the dollar have contributed to the decline in the price of gold today.
However, the most active August 2021 Comex contract loss is $ 19.10 today and is currently set at $ 1,761.60. There has been no major damage to the cards as a result of today’s decline, most likely because major damage to the cards has already occurred.
Key to gold’s future direction will be Friday’s US Department of Labor employment report. Currently, economic forecasts hover between 690,000 and 700,000 new jobs created last month. If the actual numbers come closer to or exceed the economic forecast, it could put continued pressure on gold. This could take gold to the next major support level which sits at $ 1,740. This support level is based on a Fibonacci retracement that begins at highs reached for gold in early 2021 at $ 1963 until the lows in March 2021 when gold was trading at $ 1,673 per ounce.
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Wishing you, as always, good exchanges and good health,
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