The precious metals sector, which has deteriorated since the beginning of the week, is finding a turning point as markets stay in the Jackson Hole Colloquium to gauge Federal Reserve Chairman Jerome Powell’s theme.
Gold and silver were reminiscent of the epic rally of August 23, 2022, as US dollar guides withdrew from 20-year highs and contract hunters flocked in after cashouts last week.
At the time of writing, the December Comex gold strike price rose 0.90% to trade at $1,764. And the September silver futures price was $19.10, up 0.94% from the day before.
A major impetus for crude metals and markets this week was Powell’s speech at the August 19, 2022 Jackson Hole meeting, which currently holds only the prosecutor’s title of ‘Economic Outlook’. However, the all-embracing theme of the colloquium will be ‘re-evaluation of constraints on economy and policy’.
“This topic implies a focus on the supply side of the economy… As pressures on global supply chains ease, it means that a reduction in inflation can now be achieved with a relatively modest easing of demand. Recession is still avoidable over the next quarter, a key rationale for our view, said Andrew Hunter, chief economist at US Capital Economics, “The Fed is clearly hoping for similar results, and officials may try to bolster the case next week.” The US dollar and US Treasury results are still the top drivers for gold. Whenever they
increase, gold withdraws, while any decline fuels a rally of valuable metals.
“The dollar continues to gain enough strength this week due to fears and risk aversion of the Fed reasserting its hawkish message,” said Lukman Otunuga, senior analyst at FXTM. “If Powell pushes for another jumbo rate hike in September and strengthens expectations about the Fed ahead of further tightening, that could boost the dollar. Instead, beware of expressing concerns about the US economic outlook. A lovely Chairman Powell could weaken the dollar by reducing the likelihood of a large interest rate move.”
The market continues to split, but the Fed will raise rates by 50-75 basis points at its September meeting. CME’s FedWatch Tool shows a 51.5% chance of a 50bps increase and a 48.5% chance of a 75bps increase.
What will Powell argue?
The Fed is accustomed to using the Jackson Hole colloquium to show a noteworthy move in financial policy. However, at the moment, investigators do not expect significant changes as Powell will want to give the Fed maximum flexibility before the September meeting as he awaits another amount of employment and inflation.
“We don’t think the Fed will be cornered ahead of the September 20-21 FOMC meeting. Rather, we expect the Fed to try to manage market expectations in Jackson Hole,” said BBH Global Monetary Strategy Officer. Win Thing argued.