Powell Puts Pressure on the Dollar

August 24, 2018 - 6:15pm

 by Gary Wagner

In his first speech as Fed Chairman at the economic conference in Jackson Hole, Jerome Powell’s speech resulted in the U.S. dollar trading lower and a strong upside move in gold pricing.

In his speech, Powell said that the central bank's gradual path of interest rate hikes remains “’appropriate’ as there does not seem to be “an elevated risk of overheating.”

Acutely aware that the Federal Reserve is playing an extremely important balancing act between moving towards a monetary policy of normalization, while not putting a damper on economic growth in the United States, Chairman Powell continues to thread the economic needle.

In his speech, Powell said, “My colleagues and I believe that this gradual process of normalization remains appropriate.” 

Most importantly he maintains a high level of confidence in continued and robust economic growth. “With solid household and business confidence, healthy levels of job creation, rising incomes, and fiscal stimulus arriving, there is good reason to expect this strong performance will continue.” 

His statements strongly confirm a continuation of quantitative normalization through a series of gradual quarter-point rate hikes, along with the reduction of the central bank's massive assets, which swelled to $4.5 trillion at its peak.

Currently, it is believed that the Federal Reserve will raise interest rates by 25 basis points (¼%) two more times this year. In addition, the CME’s FedWatch tool predicts that there is a 96% probability of a rate hike in November and a 60% probability that there will be a final rate hike in 2018 occurring in December.

The net result of his speech today were strong gains in the U.S. equity markets, intense selling pressure in the U.S. dollar, and a substantial upside move in gold.

As of 4:30 PM Eastern standard time, the dollar index is trading down 0.54 % and is currently fixed at 95.07. Gold futures have gained $18.20 (+1.52%), and basis the most active December Comex contract is presently settled at $1,212.20.

Today’s gains in gold are the result of both dollar weakness and traders bidding the precious yellow metal higher. According to the KGX (Kitco Gold Index), spot gold is currently trading at $1,205 per ounce, up $20.40 on the day. Approximately one-quarter of today’s gains can be attributed to a weaker U.S. dollar (+5.40), while traders buying gold accounts for the remaining increases (+$14.95).

All things being equal, with gold prices moving back above 1,200 in both the physical and futures markets, there is a high probability that we will see follow-through buying next week, as well as continued pressure on the U.S. dollar.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
Tuesday, August 21, we sent out a TRADE ALERT to BUY December gold @ the market. Wednesday we sent out a trade alert to raise our stop.
Maintain LONG december gold at $1199.50 Maintain Stop @ 1189.50 ****
**** we know many subscribers use our stop placement prices as a guide, and some take the price as we recommend, therefore please email me at gary@thegoldforecast.com to let me know if you are still long or were stopped out today..
If you did get stopped put you lost 10.00 or $1000 per contract.
Monday, August 20,  we pulled profits on our short gold trade. We were short  December gold @ $1217.60, we got out @ $1195.13 for a profit of  $22.47 or $2247.00 per comex contract
Gold Market Forecast

If we have follow through buying on Monday we will look to re enter gold from the long side (if your stop was hit). We will provide commentary for both subscribers still long and those who are out of market due to the stop being hit.