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Market News Spot gold gave up most of its gains, Powell may be "forced" by his hawks

Spot gold gave up most of its gains, Powell may be "forced" by his hawks

On August 27, spot gold rose by more than 0.7%, as the situation in Afghanistan is facing new variables, boosting risk aversion. But investors waited for Fed Chairman Powell to deliver a high-profile speech at the annual meeting of global central banks, and gold gradually gave up most of its gains. Earlier, Fed hawkish officials called for a reduction in debt purchases.

2021-08-27
10557
On Friday (August 27), spot gold once rose by more than 0.7%, as the situation in Afghanistan is facing new variables, boosting risk aversion. But investors waited for Fed Chairman Powell to deliver a high-profile speech at the annual meeting of global central banks, and gold gradually gave up most of its gains. Earlier, Fed hawkish officials called for a reduction in debt purchases.


At 19:38 GMT+8, spot gold rose by 0.18% to $1,795.72 per ounce; the main COMEX gold contract rose by 0.13% to $1797.6 per ounce; the dollar index fell 0.08% to 92.984.


The hawkish officials frequently let go


The day before Powell's speech at the Jackson Hole annual meeting, three hawkish regional Fed officials each downplayed the impact of the Delta variant virus in an interview and urged the Fed to start cutting debt purchase plans. They believe that the plan has become ineffective and even harmful. They continue to say that the Fed’s inclusive growth target means full employment and price stability.

Dallas Fed Chairman Kaplan reiterated his view that the Fed should announce a plan after the September meeting, start operations in October or "soon after", and complete the reduction in about eight months. He also hinted that the Fed is still expected to raise interest rates next year. Analysts believe this comment is more hawkish than last week, when he was nervous about the potential impact of the Delta variant virus.

Two other regional Fed presidents, George of Kansas City and Brad of St. Louis, also downplayed the impact of the Delta virus variant in interviews. Both said that the Fed is making steady progress in a plan to reduce debt purchases, which are aimed at keeping interest rates low to support the economy.

Brad said the Fed is "unifying opinions" on the reduction plan. And once again called on the Fed to start reducing the monthly bond purchase scale of US$120 billion as soon as possible. He also pointed out that rising house prices are a worrying issue.

George told Fox Business Channel that she expects more information after the Fed’s September meeting. In view of strong inflation and expected employment growth, "there is a chance to start to reduce asset purchases." She prefers to start this process "as soon as possible."

The U.S. dollar will benefit from the Fed's tightening of monetary policy, so the gold price outlook is still not lacking in fragility. If the price of gold falls below the lower edge of the recent shock consolidation range around $1770, the market outlook may test $1750 downward.

Powell may still be a pigeon


Fed Chairman Powell will provide information on the latest developments in the US economy at 22:00 GMT+8. Due to the impact of the epidemic, the global central bank annual meeting was held online for the second consecutive year. Fed policymakers often use this activity to provide guidance for their future policies.

Many investors believe that Powell’s speech at the annual meeting of global central banks will mention how the Fed views two competing risks, namely rising inflation and a surge in the number of new cases that will significantly slow down the possibility of US economic recovery.

However, Powell's tone might be more dovish. As the market is worried that the Fed will begin to reduce debt purchases, the Delta variant will cause economic growth to slow down, and Powell is expected to hint that the virus surge may hinder the Fed's actions.

Steve Englander, head of North American macro strategy at Standard Chartered Bank, said in the report that Powell may make a distinction between cutting and raising policy rates, "this requires long-term inflation concerns to become more specific."

Candice Bangsund, Fiera Capital's Montreal portfolio manager, said: "Although Chairman Powell may... lay the groundwork for the eventual reduction of debt purchases, given the deterioration in the macroeconomic situation since the July policy meeting, he is expected to be cautious and cautious this week. patience."

Tim Murray, capital market strategist at T. Rowe Price, said: “Powell is preparing to notify the tightening in advance while maintaining flexibility so that if the Delta variant or other aspects cause some negative surprises, they can adjust the tightening policy accordingly. ."

For Powell, it is no good to state a timetable clearly in today's speech. If he does not give a clear hint, this may be mildly negative for the dollar. Powell may announce a reduction in stimulus in the fourth quarter and will send a clear signal in a meeting before the actual announcement.

Biden was blamed for missteps


The situation in Afghanistan also temporarily supports safe-haven assets. The Islamic State (IS) launched a suicide bomb attack outside the gate of the crowded Kabul airport on Thursday (August 26), killing a large number of civilians and 13 American soldiers.

The U.S. troops withdrew from Afghanistan after 20 years in Afghanistan. The Taliban quickly took over. Biden faced criticism of the U.S. withdrawal. U.S. President Biden has been trying to emphasize in the days before the attack that the United States left Afghanistan to save the lives of the U.S. military. But some critics accused the hasty withdrawal as the cause of US military casualties.

U.S. Republican Senator Ben Sasse said: "This is a nightmare we worry about - that's why in the past few weeks, military, intelligence and congressional leaders from both parties have asked the president to stand up against the Taliban and expand the security area around the airport. "

Robert Menendez, chairman of the US Senate Foreign Affairs Committee, said: “While we wait for more details, one thing is clear: we cannot entrust the safety of Americans to the Taliban.” He implicitly criticized Biden's strategy.

British Defense Secretary Ben Wallace said on Friday that as the deadline (August 31) for Western countries to withdraw troops from Afghanistan approaches, the threat of further attacks around Kabul Airport will increase.

Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, said: "...In my opinion, the market is concerned about geopolitical issues. During geopolitical tensions, people have bought safe assets (such as gold)."

Spot gold may rise above US$1810


On the hourly chart, the price of gold has started an upward (iii) wave trend from $1780, and the upper resistance is looking at the 23.6% target of $1810 and the 38.2% target of $1829. The (iii) wave is a sub-wave of the upward wave ((i)) that started from $1680.
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