On Friday (August 28) in the Asian session, the DOLLAR index stabilized, now at around 93. Spot gold rebounded modestly near $1,935. Fed Chairman Colin Powell’s comments prompted sharp swings in financial markets on Thursday, with gold briefly trading around $70 and the DOLLAR index staging a near 100-point rally. Investors now waiting for the President of the United States issued a trump to accept the republican party’s presidential nomination speech, expected in his speech, criticized democratic rival Joe biden and its policy, and bash China again, analysts pointed out that if the trump comments intensify criticism for China, the market risk aversion may heat up, pushing gold prices rebound.
Powell’s speech triggered a big rally
At 21:10 Beijing time on Thursday, the Federal Reserve issued a revised statement on its long-term goals. Fed Chairman Colin Powell said the central bank’s inflation target is now 2 percent. The Fed does not provide a formula for defining an average 2 per cent inflation rate. Mr Powell said the Fed’s new strategy was a “flexible form of average inflation targeting”. The new statement reflects the Fed’s view that a “strong job market” need not lead to unacceptable levels of inflation.
In line with market expectations, the Fed wants inflation to grow by an “average” 2 per cent over time, using a “flexible form of average inflation targeting”. That means the Fed’s inflation target is 2-2.5% when the economy is at or near full employment. The other big change relates to the maximum employment target, which will now be guided by an assessment of deficiencies rather than deviations in maximum employment levels. Mr Powell also stressed that a strong Labour market could be maintained without sparking an outbreak of inflation.
The dollar index fell as low as 92.41 after the fed announcement. Edward Moya, senior market analyst at OANDA in New York, said what will happen is that the Fed will lag behind when all the other central Banks start withdrawing stimulus and start showing signs of tightening. “You see this spread being negative for the dollar,” Moya said. It just provides a longer term bearish outlook on the dollar.”
But the dollar then rallied sharply from its lows, hitting as high as 93.34, up nearly 100 points from its low. The dollar index closed at 93.01 on Thursday, up 0.11 percent. Some analysts pointed to a sharp rebound in the dollar after a precipitous fall, as Mr Powell’s dovish message of not announcing a 2.5 per cent inflation target fell short of expectations.
In gold, spot gold briefly rose nearly $40 on Thursday to hit a high of $1976.65 an ounce as the dollar fell sharply after Powell’s remarks. However, as the dollar rebounded sharply, gold staged a “high dive”. Gold fell nearly $67 from its daily high in about an hour, falling below $1,910 an ounce at one point.
Although gold prices subsequently rebounded, the day was still a big drop. On Thursday, spot gold closed at $1,929.23 an ounce, down $23.92, or 1.22 percent.
Daniel Pavilonis, senior commodity broker at RJO Futures, said: “The initial surge in gold prices was driven by the idea of 2 per cent inflation and interest rates staying at zero for an extended period. But then the market started to fall because Powell seemed to see coVID-19 as increasingly under control and the pandemic as a rearview mirror.”
The selling may have been triggered by the precious metals market’s desire to hear more about Mr Powell and not getting it. As Pavilonis points out: “Metals need more substance out of it. When Powell started speaking, it was initially very positive for metals, but then prices started to fall. “What the central Banks are saying is that they are not going to inject another trillion dollars, they are going to focus on the real economy.” Pavilonis noted that despite Thursday’s decline, the overall picture remains very positive for gold.
Phillip Streible, chief market strategist at Blue Line Futures, said another factor contributing to the fall in gold prices was the market’s interpretation of Powell’s remarks as not dovish enough. “When Colin Powell first said the Fed would allow inflation to rise above 2 percent if necessary, the market immediately rebounded,” Streible said. But when Mr Powell said the Fed would not hesitate to act if inflationary pressures picked up, the market interpreted it as likely to reverse its easing measures, which is why the metal sold off.”
Daniel Ghali, commodity strategist at TD Securities in New York, said the Fed’s statement that it would allow inflation to overpace somewhat is very positive for gold, “but the market has already priced in that, so there is no new incentive to buy gold.”
“Powell’s speech was a roller-coaster ride for asset markets, especially gold,” said Tai Wong, head of basic and precious metals derivatives trading at BMO. Gold rose nearly $50 but reversed course as the market realised he had not provided any surprises that had not been discussed before.”
Focus on Trump’s speech
Markets are now waiting for a speech from U.S. President Donald Trump. The Us Republican National Convention Wednesday afternoon formally nominated President Donald Trump as the Party’s 2020 presidential nominee, pitting him against Democratic presidential nominee Joe Biden. Trump will deliver his acceptance speech on the South Lawn of the White House on Wednesday night.
US President Donald Trump is expected to sharply criticize Democratic rival Joe Biden and his policies at the Republican National Convention on Thursday night, according to excerpts confirmed by Fox News.
According to the article first reported by Politico, Trump will go after Biden’s past and the policies his campaign supported. Mr Trump is expected to attack Mr Biden on China, immigration, crime and other issues.
Mr Trump is expected to say: “The Republican Party is united and determined and ready for millions of Democrats, independents and anyone who believes in the greatness of America and the justice of the American people. The noble American spirit has triumphed over every challenge, lifting us to the pinnacle of human endeavour.”
Donald Trump is set to formally accept the Republican party’s presidential nomination in his speech, ending the four-night national convention.
US President Donald Trump warned his supporters at the Republican National Convention on Monday that Beijing would “own” the US if a Democratic administration took office. In a speech on Monday, Mr Trump said the US had “built China” and he criticised China’s accession to the World Trade Organisation.
Trump also repeated an earlier claim that his Democratic challenger Joe Biden “fell into The pockets of Beijing” because of his son’s previous business dealings in China. “If this guy gets elected, China will own our country,” Trump said. We can’t let that happen.”
U.S. Secretary of State Mike Pompeo used an unusual appearance at the Republican National Convention on Tuesday to promote President Donald Trump’s hard line against Beijing. Peng’s President on Tuesday from Jerusalem, the capital of Israel, through the video to speak at the republican national convention, said the President trump “uncover the veil of the plunder of the communist party of China and aggression”, ensures the trump those communist spy disguised as a diplomat in the United States will be sent back to China, in prison or terminate the ridiculous and unfair trade agreement with China, will also lose jobs to China back to the United States.
Pompeo added that President Trump will hold China accountable for covering up the “China virus” and spreading death and economic damage to the United States and around the world. “He will not rest until justice is done.”
Analysts said continued tensions in China and the United States, as well as continued concerns about investors’ economic outlook, were key factors for gold to remain supported for now.
The US Department of Commerce on Wednesday announced sanctions against 24 Chinese companies involved in building military islands in the South China Sea, the first time it has imposed sanctions on China over the issue. This is the latest development in sino-us tensions. US President Donald Trump has accused China of not doing enough to prevent the coronavirus from becoming a global pandemic.
“There are still a lot of concerns about the economy and these concerns continue to point to low interest rates and continued stimulus, which should boost gold prices,” said Daniel Hynes, an analyst at ANZ.
Standard Chartered precious metals analysts said the long-term outlook for gold remained positive with further dollar weakness, low interest rates and support from additional stimulus measures.
“Covid-19 vaccine developments and improving economic data have put a headwind on the gold market in the short term,” Standard Chartered analyst Suki Cooper said in a note. “However, low and negative interest rates, a weaker dollar, and expectations of further stimulus all weigh on the upside.”
“Sentiment is deteriorating and that will force Congress to do more stimulus,” said Edward Moya, senior market analyst at OANDA. Because of all the uncertainty… They can’t let all that go for naught, which would reinforce the bullish outlook for gold.”