The decline of spot gold slows down. Powell is not easy to give a satisfactory answer to the market

On Thursday (August 26), spot gold weakened slightly, and the US dollar index is expected to end its four-day losing streak. Generally speaking, the market has entered a period of calm, and investors are now paying attention to the upcoming annual meeting of global central banks to find possible signals from the Fed about reducing monetary stimulus policies.


At 20:20 GMT+8, spot gold price fell 0.09% to US$1789.34 per ounce; the main COMEX gold contract fell 0.01% to US$1790.8 per ounce; the US dollar index rose 0.07% to 92.885.

Powell finds it difficult to do what everyone wants

The current market focus is on the annual meeting of global central banks, and the focus of the annual meeting of global central banks is on the speech of Fed Chairman Powell. The market will find clues about the timing and speed of reducing monetary stimulus measures. Although Powell has always maintained a dovish tone, there are constant dissent within the Fed, and Powell's speech is unlikely to satisfy investors who are eager to reduce the timetable.

Commenting on Powell’s upcoming speech, Jefferies analyst Aneta Markowska said: “Given the current public health crisis, it’s hard to imagine that the Fed will commit to a clear timetable for reductions.” Markowska also said that Powell might Will admit that the economy is moving towards full employment.

Relevant Fed officials believe that the signal that it is most likely to reduce stimulus this year will help the US dollar index rise to a nine-and-a-half-month high of 93.734 last Friday. But after that, Dallas Fed Chairman Kaplan, who is most strongly advocated by the Fed's policymakers to start reducing economic support as soon as possible, said that if the new crown virus causes a serious slowdown in economic growth, he may need to adjust his views.

The survey shows that the United States is expected to add 725,000 jobs this month after adding nearly 1.9 million jobs in June and July. For several months, the inflation rate has been higher than the Fed’s 2% target, but most Fed policy officials expect inflation to ease later this year.

Colin Asher, senior economist at Mizuho Bank, said: "The last time there was a big volatility in the market was after the FOMC meeting in June. Suddenly, the new Federal Reserve looks very similar to the original Federal Reserve, and they will be the first time inflation appears. Raise interest rates."

He pointed out that strong global economic growth indicates that the U.S. dollar will weaken, but the Fed’s position will be the key. The U.S. dollar will maintain reasonable support."

Sensitive task

Especially now that the Delta virus is raging, the recovery in the United States has shown signs of slowing down, especially in the most severely affected areas. The Fed seemed to reach an internal consensus at its meeting last month that it will begin to withdraw its special support for the economy later this year. However, overnight data showed that the July core durable goods orders unexpectedly remained flat in the United States, which has raised new questions.

Many Fed policymakers believe that the economy is close to making "further substantial progress" towards full employment and 2% inflation, which is the standard they have previously set for agreeing to reduce monthly asset purchases.

However, in order to maintain long-term low interest rates and help the economy that is still recovering after the impact of the epidemic, Powell will also emphasize that even if the threshold for reducing stimulus is reached, it is still far from meeting the three conditions for raising interest rates. The threshold for raising interest rates includes the actual achievement of full employment and the expected inflation to rise to slightly above 2% for a period of time.

The dollar rebounded because the market is assessing that the Fed will respond to signs that inflation may not be as short-lived as it claims. The Fed's insistence on its new policy framework that allows inflation to rise sharply faces challenges.

Tim Duy, chief U.S. analyst at SGH Macro Advisors, said: "This is a very complicated communication. The reality is that cutting stimulus and raising interest rates are inseparable: once the cut starts, it is equivalent to starting the countdown to raising interest rates."

Powell may also have to deal with a sensitive task, which is to explain why reducing the $120 billion in monthly purchases of government bonds and mortgage-backed securities (MBS) does not imply an imminent interest rate hike, thereby assisting Fed policymakers in their efforts to prevent transactions. They pushed up the cost of borrowing beyond what the Fed deems necessary or healthy for the economy. Millions of people are still unemployed in the United States.

Yale University School of Management Professor Steve Kelly said: "He will do his best to show that these are independent decisions... One decision does not necessarily lead to an acceleration of another decision. This kind of communication around reducing debt purchases and raising interest rates... is the biggest challenge. "

Since the U.S. Food and Drug Administration (FDA) fully approved the new crown vaccine produced by Pfizer and BioNTech on Monday, investors have become more optimistic about the prospects because the move may accelerate vaccination in the United States. The Moderna vaccine may be fully approved within a few weeks. On Tuesday, Dr. Anthony Fauci, a top infectious disease expert in the United States, said that the new crown epidemic may be brought under control early next year.

Fortunately, the worries surrounding the Delta variant virus faded, weakening the charm of gold as a safe haven. The market view believes that once the reduction in stimulus starts to close to becoming a reality, gold will have more room to fall, even if the timing of the reduction in stimulus is delayed by the uncertainty brought about by the epidemic.

The anti-terrorism situation is grim

Many current and former U.S. officials said that with the withdrawal of the U.S. military and its loyal allies, militants were also released from prison, and the Taliban were in power in Afghanistan, and the U.S. government is concerned about Washington’s ability to prevent al-Qaeda and other extremists in Afghanistan. Suspicion of a comeback is growing day by day.

A NATO diplomat based in Kabul, the capital of Afghanistan, said on Thursday that key members of the Taliban have pledged to provide security outside the Kabul airport, but intelligence reports about the imminent threat of Islamic State militants cannot be ignored.

With only a few weeks left until the 20th anniversary of Al Qaeda’s attack on the United States on September 11, 2001, in the eyes of US officials, the potential threat of extremism is like looking at flowers in the fog. Such prospects are chilling. Risk sentiment in the financial market may hardly improve completely.

Spot gold expected to fall to 1760 US dollars

On the hourly chart, the price of gold has started a correction (ii) wave trend from 1810 US dollars. The bottom support sees 1779 US dollars and 1760 US dollars, which are respectively 23.6% and 38.2% Fibonacci of the upward (i) wave opened from 1680 US dollars. Back to the gear position. The (i) wave is a sub-wave of the upward ((i)) wave that also started from $1680.