As traders and investors await news from Federal Reserve Chairman Jerome Powell on Friday, this will be the fundamental event that will dictate the future direction of gold. However, in the meantime, long-term moving averages on a technical basis offer an area of resistance.
Monday’s price spike pushed gold from around $ 1,780 to over $ 1,800, indicating that many traders are positioning themselves for a more accommodating tone from the Federal Reserve Chairman when he speaks virtually to members of central banks around the world at the Jackson Hole Economic Symposium. The publication of the July FOMC meeting indicated a more hawkish tone than had been perceived prior to the release of the minutes. That tone may have diminished as some of the more hawkish members of the Federal Reserve appeared to view the Delta variant as an event that could cause them to moderate their stance.
As we mentioned in yesterday’s opening letter, at least two Federal Reserve bank chairmen appeared to temper their stance and hawkish statements last week. Rob Kaplan, chairman of the Federal Reserve Bank of Dallas, and Neel Kashkari, chairman of the Federal Reserve Bank of Minneapolis, made such statements. Kaplan saying he could “rethink his call for the Fed to start cutting its $ 120 billion a month and bond purchases if it looks like the spread of the Delta coronavirus variant is slowing economic growth.” And Kashkari saying the “COVID-19 delta variant matters a lot” in the Federal Reserve’s upcoming debate on when to start slowing down the $ 120 billion in monthly bond purchases.
Since the start of the pandemic, the Federal Reserve has said its decisions depend on data. This is what makes President Powell’s job extremely difficult, is that conflicting data from the Department of Labor’s July jobs report showed the US economy recovering and simultaneously data on the rise. Alarming rates of Covid infection due to the Delta variant remains a potential key that could greatly undermine this economic recovery.
For this reason, it is very likely that President Powell will not make any major announcements as to when the Fed will begin to reduce its monthly asset purchases. It will likely address both the economic recovery in terms of adding more jobs and the potential of the Delta variant to slow that recovery. I think this will force Fed members to wait for the FOMC meeting in September to announce a reduction schedule, as they will have the latest figures from the August 2021 jobs report and the current effect of the variant. Delta regarding the economic impact of the variant. caused.
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