Gold price falls after Powell, $1,600 a risk for next week – analysts

(Kitco News) After plunging nearly $25 following Federal Reserve Chairman Jerome Powell’s much-anticipated speech, gold could risk falling to $1,600 an ounce unless buyers step in to buy the dip, analysts said.

Gold ends the week down 0.8%, with December Comex gold futures last trading at $1,748, down 1.32% on the day.

A Federal Reserve pivot is not coming, and interest rates will stay high longer than markets expected, Federal Reserve Chairman Jerome Powell said at the Jackson Hole symposium.

“Restoring price stability will likely require tight policy to continue for some time,” Powell said on Friday. “The historical record strongly cautions against premature policy easing.”

Powell also did not rule out another 75 basis point hike at the next September meeting, reiterating that much will depend on macro data released over the next three weeks.

“Another unusually large increase may be appropriate at our next meeting,” Powell said. “Our decision at the September meeting will depend on the totality of incoming data and the evolution of the outlook.”

The Fed Chairman wants to avoid the mistakes of the 1970s, which is why he plans to act aggressively now. “Volcker’s successful disinflation in the early 1980s followed multiple failed attempts to reduce inflation over the previous 15 years. A long period of very tight monetary policy was eventually needed to stem high inflation” , noted Powell. “Our goal is to avoid this outcome by acting decisively now.”

There was weakness in the precious metals sector due to Powell’s wording, RJO Futures senior market strategist Peter Mooses told Kitco News on Friday. “Gold was down after Powell said the Fed would continue to do what they can. It looks like they will do what is necessary to fight inflation,” Mooses said.

Powell’s priorities are clear heading into the September meeting — taking aggressive action to avoid the mistakes of the past, said Bart Melek, global head of commodities strategy at TD Securities.

“The Fed is looking at history and what happened in the 1970s and early 1980s. It looks like they want to get restrictive and keep rates higher for longer. They don’t want a situation where it lets inflation take root,” Melek told Kitco. New. “A lot of people thought the Fed would cave in as the economy slowed down a bit. Now it looks like it won’t.”

And gold has delivered on the promise of higher real interest rates, especially on the front end of the curve. “Two-year treasury bills soared after Powell’s speech and inflation expectations fell slightly. When you combine high nominal rates with lower inflation expectations, real rates should rise. Traditionally, c is quite negative for gold and driving prices down,” Melek said. .

However, Powell’s message is getting repetitive, which could end up helping gold, Mooses added.

“I have concerns about US growth in the fourth quarter. That will tell how the Fed adjusts,” he said. “We see a lot of similar talk and patterns. Gold could rally within a day or two. But if stocks strengthen, gold could weaken. Longer term, I’m still bullish for gold.”

Gold price levels to watch

Gold is very likely to drop below $1,700 an ounce next week, according to Melek. “There’s no big upside price pivot for gold until we’re sure the Fed reverses course. And that’s unlikely until later in 2023,” he said. he declares.

There is strong support around $1,690-$1,700. But if that is crossed, “a drop to $1,600 will not come as a surprise,” Melek added.

Mooses is also watching the $1,690 per ounce level, expecting buyers to approach that level. “The $1,880 level is a realistic price to return to for gold in the coming weeks,” he said.

Next week’s data

With the Fed so focused on macro data, the upcoming August inflation and jobs reports will be the main market drivers to watch ahead of the September meeting, Melek added.

“Right now, the market’s payroll projections are still quite correct for August, with the unemployment rate expected to remain at 3.5% and the economy adding almost 300,000 payrolls,” he said. he declares.

Tuesday: American consumer confidence in CB

Wednesday: US ADP Nonfarm Employment Trends

Thursday: US Unemployment Insurance Claims, ISM Manufacturing PMI

Friday: US non-farm payrolls

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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