Spot gold briefly traded above $1,970 an ounce in early Asian trading on Tuesday, before falling slightly, while silver pared gains to 0.22 percent. Powell, chairman of the federal reserve last week hinted at the annual meeting of the Jackson hole, the central bank easing inflation target, the vice-chairman of the fed, larry said on Monday, the fed’s commitment to not only because the unemployment rate and raising interest rates, in many cases allow appropriate beyond the inflation target of 2%, at the same time denied that the feasibility of negative interest rates. He also acknowledges that past policies may have gone astray because they followed a pattern that did not work in a world where low interest rates would be the norm.
Federal Reserve Clarida described the new policy as a “milestone” in gold’s volatile close
On Monday, Fed Vice Chairman Clarida was invited to a briefing and discussion on U.S. monetary policy hosted by the Peterson Institute for International Economics. Clarida said that with the new policy framework in place, the Fed would move on to discussing next steps to combat the economic consequences of health events. Further communication about the plan is expected as the economy recovers and the Fed nears its target. Clarida also says the new policy framework shows that low unemployment does not in itself mean higher interest rates are needed, a change intended to acknowledge that the economy is different from the textbook model. “In the absence of evidence that inflation is, or is likely to remain, above target or because of financial stability concerns, low unemployment by itself will not be an adequate trigger for policy action.”
Clarida’s comments described the new policy as a “milestone” and said the new approach was justified because the study showed how much the economy had changed since 2012. Maintaining the original policy framework could put the US on the same weak growth path as countries such as Japan. He said the Fed’s work had not been completed, a new policy framework had been set and the central bank would start working on revising its summary of economic forecasts.
Clarida’s remarks triggered a sharp fall in the dollar, with spot gold ending Monday at $1967.38 an ounce, up $2.87, or 0.15 percent. On the day, spot gold touched as high as $1976.20 an ounce and as low as $1954.15. But gold recorded its first monthly decline in five months, with spot gold falling 0.3 per cent in August after soaring to an all-time high of $2,072.49 on August 7.
At 12.30 today, the RBA will hold an interest rate decision and TD Securities expects the RBA to indicate that uncertainty remains high, particularly given the situation in Victoria. The Fed has said the economic downturn has not been as severe as previously thought and that most areas are recovering, and today’s statement is expected to continue to show that view.
Fed officials will speak throughout the week and are expected to provide further forward guidance for the Central bank’s September policy meeting.
On top of the Fed officials’ remarks, markets will also be bracing for a major payrolls report this week.
This week’s focus is on the U.S. nonfarm report. The U.S. non-farm payrolls report is due at 20:30 Beijing time on Friday, with the market now expecting 1.518 million new jobs created in August, the U.S. unemployment rate to fall to 9.9 percent from 10.2 percent and the average hourly wage rate to 0 percent from 0.2 percent.
With the US election less than two months away, the non-farm payrolls report on September 4, if the unemployment rate falls below 10 per cent, could provide Mr Trump with ammunition to claim a sustained recovery under his leadership, analysts said. Democratic opponents, led by Mr Biden, are likely to question whether this improvement can be sustained as the US struggles to contain the coronavirus.
A Bloomberg survey put nonfarm payrolls likely to have risen 1.4 million in August, not far from July’s 1.76 million figure. The Labor Department report covers the period through mid-August. Economists expect the unemployment rate to hit 9.8 percent, almost three times what it was before the outbreak, though it is back in single digits.
The overall employment figure probably reflects a boost from the roughly 238,000 temporary workers employed to conduct the once-a-decade U.S. census. It is important to note, however, that while the overall growth reflects the reopening of businesses and the decline in coVID-19 cases, the economy remains fragile as the epidemic is not yet under control.
Is gold on track to break 2000 this week?
Jeffrey Sica, founder of Circle Alternative Investments, said: “The weaker dollar and the expectation of further dollar weakness has led to a slight rise [in gold prices].” The dollar fell to its lowest level against other major currencies since May 2018.
“Risk aversion in global markets is now waning, which has limited safe-haven metal bulls to some extent,” Jim Wyckoff, senior analyst at Kitco Metals, said in a note. Global stocks hovered near record highs as investors bet that central Banks will continue to provide monetary support to boost an economy hit by a novel Coronavirus. However, Sica said “there are serious concerns that the (equity) market may have been overstretched and there could be some profit-taking, which could lead to a shift towards gold.”
“Gold will continue to be one of the best beneficiaries of a weaker dollar and is expected to pass $2,000 again in the coming weeks,” Hussein Sayed, chief market strategist at FXTM, wrote in a report on Monday.
Stephen Innes, chief global market strategist at AxiCorp, said in a market update that investors are “waiting for the pace of improvement in economic growth to slow and the uncertainty of the U.S. election to take center stage as a reason to hold gold and keep shorting the dollar.”