By Jigar Trivedi
Weekly, the metal gains 1.4% after four consecutive periods of declines. Initially, the yellow metal dropped below $1,885 an ounce on Friday, facing pressure from a strong dollar as investors continued to gauge the monetary policy outlook following Federal Reserve Chair Jerome Powell’s Jackson Hole remarks. The banker noted caution is required in next meetings to assess the health of the economy, but further hikes won’t be ruled out since the regulator aims to bring inflation back to the target. At the same time, traders bet on a possible pause in tightening from the ECB due to the weak European data. More insights on that could be provided in Lagarde’s comments later in the day. Previously, two Fed officials indicated that the jump in bond yields could complement the central bank’s effort to slow the economy and reign in price pressures without needing to raise rates.
Dollar Index firms at 11-week high
The dollar index rose above 104.2 on Friday, reaching its highest levels in eleven weeks and on track to advance for the sixth straight week as investors digested Federal Reserve Chair Jerome Powell’s Jackson Hole speech. Powell’s statement emphasized the US Federal Reserve’s commitment to bringing inflation back to 2% and stated that the central bank is ready to hike rates if needed. At the same time, Powell suggested the Fed could hold rates steady at its next meeting in September to assess the incoming data and the evolving outlook and risks.
US durable goods orders fall the most in over 3 years
New orders for manufactured durable goods in the US plummeted by 5.2% in July 2023, following a downwardly revised growth of 4.4% in June and exceeding market expectations for a 4.0% decline. It was the sharpest decrease in durable goods orders since the aftermath of the COVID-19 outbreak in April 2020, driven by a significant drop in demand for transport equipment.
US 10-year treasury yield retreats further
The yield on the 10-year US Treasury note retreated toward 4.2% after hitting a 15-year high of 4.342% on August 21st, triggering a sharp rebound for government bonds worldwide as credit markets continued to assess the policy outlook for the Federal Reserve and gauge the impact that higher bond supply may have on their bidding levels. Cooler-than-expected PMI figures engaged bond buyers in the market to take further advantage of the recent slump in Treasury securities, reflecting bets that fears of a slowing US economy will force the Fed to ease its hawkishness. Still, other data releases countered slowdown fears, as strong retail sales underscored the resilience of the US consumer while robust industrial growth and a relatively tight labor market suggested the US central bank may still have more room to tighten monetary policy. Additionally, risks remain for bond prices in the secondary market due to concerns about higher long-dated debt issuance from the Treasury this month.
Outlook
US will release consumer confidence on Tuesday but most importantly, ADP employment change for August and Q2 GDP on Wednesday and Non-farm payrolls on Friday will be releasing. From the technical angle, $1,885/ounce, the low point of last week is now a crucial support for now for gold price. In case the yellow metal with the support of the volumes, falls below it, may fall further to $1,860 an ounce. The dollar index too has appreciated last week, hence if the bull-run continues in the greenback, the yellow metal may decline further. Hence we recommend to short on every bounce.
(Jigar Trivedi, Senior Research Analyst – Currencies & Commodities at Reliance Securities Limited. Views expressed are the author’s own.)