Spot gold continued to come under pressure in Asia afternoon on Thursday and is now trading around $1940 as the market awaits Powell’s remarks today.
Gold and silver futures hit new one-week highs yesterday as traders focused on an upcoming speech by Federal Reserve Chairman Colin Powell at the Jackson Hole conference. This meeting will be the next major catalyst for precious metals.
Gold fell in early trading on Rising Treasury yields, accelerating losses after better-than-expected US durable goods orders. The data showed orders for durable goods rose 11.2 per cent in July, well above the consensus forecast of 4.8 per cent.
“Historically, good economic data have been negative for gold, but in this case real interest rates fell after the release as rising inflation expectations outweighed the rise in US Treasury yields.” “It’s a bullish dynamic for gold,” Tyler Richey, co-editor of Sevens Report Research, told MarketWatch.
The move comes ahead of a much-anticipated speech by Mr Powell, who is expected to send a looser signal that the Fed is willing to take unconventional measures to consider higher inflation.
Mr Powell is now expected to advocate an “asymmetric inflation target”, allowing policymakers to push inflation above the traditional 2 per cent target, which could be seen as positive for gold and other precious metals.
The Fed chairman is expected to webcast the Jackson Hole symposium at 21:10 Beijing time on Thursday, which is actually being held in response to the coVID-19 pandemic.
Jeff Wright, executive vice President of GoldMining Inc., said Powell’s speech “may change the gold market, but it needs to confirm the ‘dovish tone/sentiment’ for gold to rebound further. If he speaks in favor of zero interest rates and other ways to reignite growth, expect the dollar to fall again and gold to rebound to $2,000 in the short term.”
OANDA analyst Ed Moya also said gold could challenge $2,000 this week if Powell’s comments did not disappoint.
Gold futures for December delivery rose $29.40, or 1.5 per cent, to close at $1,952.50 an ounce yesterday after hitting a low of $1,908.40. It was the highest close for the most active contract since August 19, according to FactSet.
Precious metals are trading against a backdrop of falling gold prices as government bond yields rise, according to FactSet data. The yield on the 10-year Treasury note rose 1.6 basis points to 0.698 per cent.
Higher yields could increase the relative cost of holding gold.
At the same time, gold’s rise is being driven by a weaker U.S. dollar, which makes the metal more attractive to overseas buyers. The ICE Dollar index, which measures the dollar against six other currencies, fell 0.1%, but was much stronger earlier in the session.
Brien Lundin, editor of Gold Newsletter, wrote: “The natural trend for Gold is now up, mainly due to the growing global recognition that monetary easing and stimulus spending will devalue currencies against Gold. I think we’re going to continue to see gold consolidate its gains through time, rather than making a big price correction and trading in a range a few months before rebounding again.”