Gold is back in the red below $4,600 early Friday, resuming its corrective decline from 15-week highs of $4,697 earlier this week.
Gold’s fate hinges on Warsh’s words
Gold bulls are consolidating the upside, awaiting Federal Reserve (Fed) Chairman Kevin Warsh’s debut at the annual Jackson Hole Symposium.
In doing so, traders are continuing to take profits off the table, following the recent surge to over three-month highs. They keenly await Warsh’s words for fresh hints on whether an interest rate hike remains a possibility at the Fed’s September 16-17 monetary policy meeting.
Despite hot US core Personal Consumption Expenditures (PCE) Price Index data for July, the CME Group’s FedWatch Tool shows the market keeps pricing in a roughly 65% probability that the Fed will keep rates on hold next month.
The headline PCE Price Index increased 0.2% for the month, putting the annual inflation rate at 3.7%, the Commerce Department reported Wednesday. The market forecast was for 0.1% and 3.6%, respectively. Meanwhile, core PCE posted gains of 0.2% and 3.3%, in line with forecasts.
Fading hopes for a September Fed rate hike and the optimism over a potential reopening of the Strait of Hormuz keep the US Dollar (USD) recovery in check, limiting any downside in Gold.
However, Gold’s next major move remains at the mercy of the new Fed Chairman, with markets expecting Kevin Warsh to signal a roadmap for fighting inflation while not just sticking to his rhetoric of watching incoming economic data and restoring price stability.
If Warsh disappoints by offering no hints on the path forward for interest rates or fails to address the recent developments around bond markets, that is unlikely to go down with US Dollar traders. In such a scenario, Gold could see a fresh leg north.
That said, any reaction could be short-lived as attention would quickly turn to next week’s US Nonfarm Payrolls data.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,579.57, holding a clear bullish bias as price stands above the 21-day, 50-day, 100-day and 200-day simple moving averages (SMAs), which all trail beneath the market and reinforce a well-supported uptrend. The Relative Strength Index (14) at 64.55 is in bullish territory but shy of overbought conditions, suggesting positive momentum that still leaves room for further upside before excessive froth becomes a concern.
On the downside, initial support is aligned with the 200-day SMA near $4,527.73, followed by a medium-term demand zone around the 21-day SMA at $4,399.08 and the 100-day SMA at $4,374.69, while the 50-day SMA at $4,208.94 marks a deeper trend-supportive floor. With no nearby technical resistance levels overhead in this dataset, the path of least resistance remains to the upside as long as XAU/USD continues to trade above these stacked moving averages.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold longs seen resilient as Dollar debasement theme offsets Jackson Hole risk
According to TD Securities, Commodity Trading Advisors “remain comfortable with their long positions in gold heading into Jackson Hole,” reflecting a constructive backdrop for the metal. The bank cautions that “a more hawkish tone from Fed Chair Warsh would be a catalyst for some reversal in the yellow metal,” but argues that “the bar is likely high to reverse the improved sentiment in precious metals.” Beyond the Fed’s “willingness to look past an energy-driven inflation shock,” TD Securities highlights that “the re-ignition of the dollar debasement theme has also fueled renewed macro discretionary appetite in precious metals.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
