2021-08-24 17:54:59
Gold prices got off to a solid start this
week, benefiting from a weaker US Dollar and a small bump in Treasury buying.
XAU/USD climbed 1.36% on Monday, with prices now tracking for a third weekly
rise, although last week’s gain was marginal. Still, the yellow metal has held
up rather well considering the upward price action seen in the US Dollar. A
stronger USD typically acts as a headwind for gold prices.
The US Dollar’s upside reaction last week
was due to increased bets that the Federal Reserve will begin reducing its pace
of asset purchases, a move that is seen prefacing rate hikes. At the same time,
increasing Covid cases around the globe, driven by the Delta variant, sent a
wave of risk aversion through markets. That was likely responsible in part for
underpinning gold prices as the metal attracts haven flows.
Comparing gold to a different currency
base, such as the Euro, highlights the safe-haven flow seen last week, with
XAU/EUR rising 0.91%. Bullion investors will be keenly focused on the Jackson Hole
Economic Policy Symposium later this week when Federal Reserve Chair Jerome
Powell will speak. Mr. Powell may send the markets an answer on balance sheet
tapering, which has been front and center for market focus over recent weeks.
However, the Fed Chief may brush off
questions on reducing the pace of asset purchases amid the ongoing Delta wave
of Covid and instead defer to the September FOMC meeting. That would likely
bode well for gold prices as it could be seen as a dovish move, which would
likely drag the US Dollar lower along with Treasury yields.
Last week, Dallas Federal Reserve President
Robert Kaplan expressed doubt over a rollback of the pace of purchases if the
Covid pandemic slows economic growth this year. This week will also see
inflation figures cross the wires, an event that would normally command much
attention. Core PCE – which strips out volatile food and energy items—is
expected to rise 3.6% for July, according to a Bloomberg survey. While markets
will likely be hyper-focused on Jackson Hole, an outsized surprise may hit gold
prices.
Gold Technical Forecast
Gold has clawed its way higher after a
sharp drop earlier this month. XAU/USD is now trading at the upper bound of a
descending channel after overtaking the 50-day Simple Moving Average (SMA) at
the start of the week. The 78.6% Fibonacci may support prices, and perhaps
allow XAU to consolidate its way out of the channel. A break lower, however,
will likely put prices back to the 50-day SMA, with the 61.8% Fib below that.
Gold Daily Chart
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