Gold hovers above $1800 as investors await Powell’s speech on Friday

As of 4:53 PM EST gold futures basis, the most active December 2021 Comex contract is trading off by $1.10 and currently fixed at $1805.20. Gold traded to an intraday high today of $1812.20, just below gold’s 200-day moving average, fixed at $1813.30. Gold’s current price of $1805.20 puts it below the 100-day moving average currently set at $1808.90.

Since traders and investors are waiting to hear from the Federal Reserve Chairman Jerome Powell on Friday, this will be the fundamental event that dictates gold’s future direction. However, in the interim, the long-term moving averages on a technical basis provide an area for resistance.

Monday’s price surge took gold from approximately $1780 to pricing above $1800 is signaling that many traders are positioning themselves for a more dovish tone from the Federal Reserve Chairman when he virtually addresses members of central banks worldwide at the Jackson Hole Economic Symposium. The release of July’s FOMC meeting indicated a more hawkish tone than perceived before the release of the minutes. That tone may have diminished as some of the more hawkish Federal Reserve members seemed to address the Delta variant as an event that might cause them to temper their stance.

As we mentioned in yesterday’s opening letter, at least two presidents of Federal Reserve banks seemed to temper their hawkish stance and statements last week. Rob Kaplan, President of the Dallas Federal Reserve bank, and Neel Kashkari, the Minneapolis Federal Reserve Bank president, made such statements. With Kaplan saying that he may “rethink his call for the Fed start to taper its 120 billion per month and bond purchases if it looks like the spread of coronavirus Delta variant is slowing economic growth.” And Kashkari saying that the “COVID-19 delta variant matters a lot” in the upcoming Federal Reserve debate about when to start to slow down the $120 billion in monthly bond purchases.

Since the onset of the pandemic, the Federal Reserve has stated that its decisions are data-dependent. This is what makes Chairman Powell’s job extremely difficult is conflicting data from the Labor Department’s July jobs report showed that the U.S. economy that was recovering and simultaneously data about the alarming uptick of Covid infection rates due to the Delta variant remains a potential wrench that could greatly undermine that economic recovery.

For that reason, it is highly likely that Chairman Powell will make no major announcement as to the timeline in which the Fed will begin to taper its monthly asset purchases. He will likely address both the economic recovery regarding additional jobs being added and the potential for the Delta variant to slow that recovery down. I believe this will cause Fed members to wait until the FOMC meeting in September to announce any tapering timeline because they will have the latest figures of the August 2021 jobs report and the current effect of the Delta variant in regards to the economic repercussions the variant has caused.

Wishing you, as always, good trading and good health,