Gold price took a step back after the Fed spoke

Gold price took a step back after the Fed spoke

(Kitco News) Price action in the gold market is picking up steam following hawkish comments from Federal Reserve officials as prices move further away from the $1,800-per-ounce target.

The price of gold jumped to a daily high of $1,805 an ounce on Tuesday morning, leading to heightened geopolitical tensions as House Speaker Nancy Pelosi landed in Taiwan amid threats from China of “serious consequences” for her visit.

But gold gave back all of its daily gains after the Fed’s aggressive rhetoric, with December Comex gold futures last trading at $1,777.10, down $10.

“Gold pared gains after Wall Street grew optimistic that tensions between the world’s two largest economies would get out of hand,” said OANDA chief analyst Edward Moya. “A strong dollar is also weighing on gold as the dollar’s slide over the past few weeks appears to have ended.”

Chicago Fed President Charles Evans said on Tuesday that the U.S. central bank is likely to continue using outsized rate hikes until it sees inflation falling. Evans added that he is not ruling out a 50 basis point hike in September.

“If you really thought things weren’t getting better … 50 (basis points) is a reasonable assessment, but 75 might also be fine. I doubt more would be needed,” he told reporters on Tuesday.

Also speaking Tuesday was San Francisco Fed President Mary Daly, who said inflation was still a problem. The Fed has a “long way to go” to achieve its price stability goals, especially after June inflation accelerated to 9.1% a year ago, Daily said during a LinkedIn interview. “We are still committed and completely united,” she said.

Going forward, everything depends on the data, Daly added, following Fed Chairman Jerome Powell’s statement last week. “I’m really looking for what this data is telling us to see if we can slow down the pace of rate hikes a little bit, or if we need to continue” to increase the size, Daly said.

Evans and Daly are not voting members this year, but their comments reveal some behind-the-scenes thinking.

The hawkish comments come after the US Federal Reserve raised rates by 75 basis points for the second time in a row last week. At the time, Powell also said the US was not in recession, meaning there could be another “unusually large” rate hike in September, followed by a slowdown in tightening.

“I don’t think the US is in a recession right now. There are too many areas of the economy that are doing too well. I would point to a very strong labor market. [It is] it is true that growth is slowing down… [But generally]GDP numbers [are] quite significantly revised. You tend to take the first GDP reports with a grain of salt,” Powell said, referring to the first reading of the Q2 GDP report.

The data points to still problematic inflation numbers and a slowing economy.

Markets are still reeling this week as the Fed’s preferred measure of inflation — the personal consumption expenditure price index — rose 6.8%, the biggest year-over-year increase since the 6.9% posted in January 1982.

Also, US GDP fell 0.9% in the second quarter, marking the second consecutive quarterly decline and meeting the technical definition of a recession.

Going forward, Powell said he wants to make decisions on a meeting-by-meet basis and refrain from giving clear guidance on the exact size of future rate hikes. Two more reports on inflation and jobs will be released before the Fed’s September meeting.

Live 24 hour gold chart [Kitco Inc.]

For gold, the strong US dollar will continue to be a barrier to higher prices, Moya noted.

“The US dollar got a lot of support as the latest round of Fed speeches supports the idea that the interest rate differential will remain broadly in favor of the dollar,” he said. “Geopolitical jitters could also attract safe-haven flows, mainly into Treasuries, which will support the dollar. Gold is once again trying to be a safe haven, and this latest round of international risks to the outlook will allow us to learn quickly if it becomes one.” “

For gold to see a significant change in trend and a sustainable bull rally, the precious metal needs to trade well above the $1,800 per ounce level, according to strategists at TD Securities.

“The prevailing risk-on tone in the market tied to US-China relations further supported the yellow metal through modest haven flows,” they said on Tuesday. “However, for further significant short covering from CTA trend followers, gold prices would need to close north of $1,820/oz to trigger a reversal of trend signals… We see risks that Fed spokesmen may soon suppress against market expectations.” Fed pivot. In this sense, the gold markets are dealing with a huge amount of complacent traders who still hold the title as the dominant speculative force in gold.”

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect those of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor can the author guarantee such accuracy. This article is for informational purposes only. This is not an invitation to make any exchange for commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept responsibility for loss and/or damage arising from the use of this publication.

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