FX168 Mainland China > News > Full Text Weekly Gold Review: Afghanistan's Situation 'Changes', Despite Strong US Dollar Rise, Gold Price Falls Below $1800, Big Market Moves Expected Next Week
This week, the gold market was hit by numerous risk events, resulting in volatile price movements. At the beginning of the week, due to the instability in Afghanistan, market risk aversion significantly increased, and gold prices briefly broke through $1795 per ounce, but failed to conquer the $1800 per ounce mark. After the release of the hawkish Federal Reserve minutes, the US dollar strengthened, which put pressure on gold prices. By the end of the week, gold prices closed with only a slight increase. Next week, investors will face the Jackson Hole central bank annual meeting, where Federal Reserve Chairman Powell will deliver a speech. In addition, next week, the US will release major data such as GDP and PCE inflation indicators, which are expected to cause significant market volatility next week. This week, spot gold closed up $1.61 or 0.09%, at $1781.06 per ounce. The price of gold reached a high of $1795.50 per ounce and a low of $1770.71 per ounce this week. Federal Reserve Minutes Turn Hawkish, US Dollar Strengthens This week, the US dollar reached a nine-and-a-half-month high against major currencies. The minutes of the Federal Reserve's July meeting showed that Fed officials believe it may be appropriate to begin reducing stimulus policies this year. In addition, due to market concerns that the Delta coronavirus variant may delay the global economic recovery as central banks begin to reverse pandemic-era stimulus measures, the resulting safe-haven buying also supported the US dollar. The US dollar index closed at 93.46 this week, and on Friday, the US dollar index rose to 93.73, its highest level since early November last year. This week, the US dollar index rose by 1.02%, its largest increase in two months. On August 18, the minutes of the Federal Open Market Committee (FOMC) meeting showed that officials had developed a plan in their July meeting to potentially reduce the scale of monthly bond purchases before the end of the year. The minutes showed that participants discussed asset purchases, including progress toward the FOMC's full employment and price stability goals, and considered how to adjust asset purchases when economic conditions warrant. Officials said the Fed could reach the threshold for reducing bond purchases this year. The minutes stated: "Looking ahead, most participants indicated that if the economy evolves broadly as they anticipate, they judge that it could be appropriate to begin slowing the pace of asset purchases this year." The minutes added that the economy has met its inflation target and is "close to satisfied" with the progress of job growth. Regarding the inflation issue that is of widespread concern in the market, the minutes showed that participants said that recent inflation data was affected by supply bottlenecks and labor shortages, and was likely temporary. Some participants emphasized that the recent high inflation data was largely driven by price increases in a small number of categories. Reducing bond purchases is usually beneficial to the US dollar because it means the Fed will not inject large amounts of cash into the financial system, thus pushing up the value of the US dollar. A foreign exchange analyst at ING wrote in a report: "The dollar trade-weighted index is setting new highs for the year. This comes at a time when the US yield curve is strengthening and flattening—this usually represents a more pessimistic reassessment of the growth outlook. Therefore, although the Fed's tone is largely a downward path to reducing bond purchases, the large demand for the dollar seems to come from investors withdrawing from overseas growth themes." On Thursday, the US Department of Labor reported that the number of initial jobless claims fell sharply by 29,000 to 348,000 last week, the smallest increase since the week of March 14, 2020, down from 377,000 the previous week and better than the expected 363,000. Despite the surge in COVID-19 infections posing a risk to the labor market recovery, the number of initial jobless claims in the US fell to a 17-month low last week, falling for the fourth consecutive week, indicating strong job growth last month. Some economists believe that the continued decline in initial jobless claims could prompt the Fed to announce a reduction in its bond-buying program before the end of the year. Afghanistan Situation 'Changes', Gold Prices Supported On August 15, the Taliban in Afghanistan completely occupied the capital Kabul, and the situation in Afghanistan underwent a 'major change', increasing concerns among neighboring countries about regional security. Daniel Pavilonis, senior market strategist at RJO Futures, said that the strengthening US dollar put some pressure on metals. However, the turbulent situation in Afghanistan benefited gold. Gold is often used as a safe haven asset during times of political and financial turmoil. Carlo Alberto De Casa, analyst at Kinesis, pointed out that the turmoil in Afghanistan's political situation has brought about risk aversion in the market, and investors are shifting some liquid funds to gold. In addition, the Delta variant continues to spread globally, and the market is worried that epidemic lockdown measures will hinder economic growth, thus boosting the safe-haven demand for gold. David Merger, head of metals trading at High Ridge Futures, said: "We do have a two-sided market at the moment. Based on recent comments, the market expects the Fed to gradually reduce bond purchases, which has led to the recent relative strength of the dollar. On the other hand, we still believe there is potential support in the current gold market. We are starting to see that the Delta variant is causing some drag on the global economic recovery." Craig Erlam, analyst at OANDA, said: "Gold has undoubtedly benefited from its safe-haven status. With the stock market falling sharply, demand for gold has returned, and clearly, nervousness about the coronavirus is seeping in. It looks easier for gold prices to break through $1800 per ounce." Jackson Hole Central Bank Annual Meeting Coming Next Week Looking ahead to next week, the market will still face many tests, the most crucial of which are undoubtedly the Jackson Hole central bank symposium and the US PCE price index. In addition, many countries in Europe and the US will release manufacturing, service, and composite purchasing managers' indices (PMI) and consumer confidence indices. In terms of economic data, the market will see key PMI data from Europe and the US. Monday's data is relatively dense, with the preliminary values of the August Markit manufacturing PMI for France, Germany, the eurozone, and the UK, as well as the preliminary values of the August Markit manufacturing and service PMI for the US, to be released successively. On Tuesday, pay attention to Germany's seasonally adjusted GDP for the second quarter and the US July new home sales and the US August Richmond Fed manufacturing index. On Wednesday, the change in US crude oil inventories is the focus of the oil market, while Germany's August IFO business climate index and the preliminary value of US July durable goods orders will also be released. On Thursday, the focus will be on the US seasonally adjusted initial jobless claims for last week and the revised US second-quarter real GDP. On Friday, the market will see the US July personal consumption expenditure (PCE) price index, the Fed's preferred inflation indicator, along with the final value of the US August University of Michigan consumer sentiment index. In terms of central bank dynamics, the Bank of Korea will announce its interest rate decision next Thursday, and the European Central Bank will release the minutes of its July monetary policy meeting. However, for the market, the more crucial event is undoubtedly the Jackson Hole Global Central Bank Annual Meeting (August 26-28). This meeting, attended by top central bank governors and economists from around the world, is closely watched by the market to gauge clues about policy changes. Investors will be watching Federal Reserve Chairman Powell's speech at Jackson Hole for new signs of when the Fed will announce a reduction in its bond-buying program. The Federal Reserve said that Chairman Powell will deliver a speech via video at the Kansas City Fed's annual Jackson Hole Global Central Bank Annual Meeting. According to the schedule released by the Federal Reserve on Thursday, Powell has confirmed that he will deliver a speech at 10:00 am local time on August 27 (10:00 pm Hong Kong time) via the Kansas City Fed's YouTube channel, with the theme of "Economic Outlook." The vague description of the speech's theme contrasts sharply with the more specific theme of last year's speech, "Review of the Monetary Policy Framework." At last year's central bank annual meeting, Powell transformed the Fed's inflation system into a flexible average inflation targeting system, which sparked heated discussions in the market. Some analysts expect Powell to unveil a clearer roadmap for reducing bond purchases next week. Federal Reserve Chairman Powell recently said that substantial progress in the labor market will be key to the Fed's eventual reduction of stimulus measures. Powell said in a virtual town hall meeting with teachers and students across the US on August 17 that while it is unclear whether the Delta variant will further affect the economy, many areas of the US economy have undergone significant changes since the pandemic began and led to US lockdowns. Diane Swonk, chief economist at Grant Thornton, said the Fed needs to provide a roadmap for reducing bond purchases, but should also take appropriate measures if the COVID-19 pandemic is more severe than expected. Matt Weller, global head of research at FOREX.com and City Index, pointed out that the focus is now shifting to next week's Jackson Hole symposium, where traders will be closely watching Fed Chairman Powell's keynote speech for clues on the timing of an announcement to reduce bond purchases. Weller said: "As long as there is no major economic downturn, most Fed officials seem to think that tapering can begin this year." How Will Gold Prices Move Next Week? Kitco News' weekly gold survey released on Friday showed that retail investor sentiment is deteriorating. Market sentiment fell to its lowest level in more than five months. Analysts pointed out that the gold market is being hit by various forces as the global economy faces rising inflation and a slow post-pandemic recovery. At the same time, investors are trying to gauge the Fed's next move and its impact on bond yields and the US dollar. This week, 15 Wall Street analysts participated in Kitco's gold survey. Among the participants, 7 (47%) believed that gold prices should rise. The number of analysts with bearish and neutral views was roughly equal, with two votes each, accounting for 27% respectively. Meanwhile, a total of 930 people participated in the online poll of ordinary investors. Of these respondents, 428 (46%) expected gold prices to rise next week. Another 334 (36%) expected gold prices to fall, and 168 (18%) held a neutral outlook. Retail investor confidence fell to its lowest level since March 5. Phillip Streible, chief market strategist at Blue Line Futures, said that although gold prices have room to break through $1800, in a weak economic growth environment, the threat of deflation is intensifying, which may limit potential upside in the near term. Streible said: "Gold performs well in inflationary or stagflationary environments. But it's more of a placeholder in a deflationary environment, competing with the dollar and the stock market." Adrian Day, president of Adrian Day Asset Management, said that given the rebound in gold prices from recent lows, there may be some consolidation. But he added that fundamentally, the long-term outlook remains bullish. He pointed out that the US has lost its standing after its failed withdrawal from Afghanistan, which means that people have lost confidence in everything American, including the dollar. Ole Hansen, head of commodity strategy at Saxo Bank, said that if Fed Chairman Powell is much more cautious than economists expect about the Fed's reduction of its monthly asset purchase program at the annual Jackson Hole summit, then gold prices have a chance to rise. Mark Leibovit, publisher of VR Metals/Resource Letter, said he remains cautious about gold prices in the near term; however, he also pointed out that gold will rebound further from its current oversold levels. Carlo Alberto De Casa, market analyst at Kinesis, said in a report that from a technical perspective, gold prices could find their first support zone at $1760 per ounce, while $1790 per ounce remains a key resistance zone. Lukman Otunuga, senior research analyst at FXTM, said in a report that if gold prices close above $1792 per ounce, it could open the door for gold prices to rise towards $1800 and $1830 per ounce.
Time:
2021-08-23 08:22
This week, the gold market was hit by numerous risk events, resulting in volatile gold prices. At the beginning of the week, affected by the turbulent political situation in Afghanistan, market risk aversion significantly increased, and gold prices once broke through $1795 per ounce, but failed to conquer the $1800 per ounce mark. After the release of the hawkish Federal Reserve minutes, the US dollar strengthened, which put pressure on gold prices. As of the close of this week, gold prices closed with only a slight increase. Next week, investors will face the Jackson Hole central bank annual meeting, where Federal Reserve Chairman Powell will deliver a speech. In addition, next week, the United States will release heavyweight data such as GDP and PCE inflation indicators, which are expected to cause sharp market fluctuations next week.
This week, spot gold closed up $1.61 or 0.09%, at $1781.06 per ounce. The price of gold reached a high of $1795.50 per ounce and a low of $1770.71 per ounce during the week.
Federal Reserve Minutes Turn Hawkish, US Dollar Strengthens
This week, the dollar rose to a nine-and-a-half-month high against major currencies. The minutes of the Federal Reserve's July meeting showed that Fed officials believed it could be appropriate to begin reducing stimulus policies this year. In addition, due to market concerns that the Delta coronavirus variant could delay the global economic recovery as central banks begin to reverse pandemic-era stimulus measures, the resulting safe-haven buying also supported the dollar's rise.
The US dollar index closed at 93.46 this week, and on Friday it rose to 93.73, the highest level since early November last year. This week, the US dollar index rose by 1.02%, the largest increase in two months.
On August 18, local time, the minutes of the meeting released by the Federal Open Market Committee (FOMC) of the Federal Reserve showed that officials had formulated a plan at the July meeting to potentially reduce the scale of monthly bond purchases before the end of the year. The minutes showed that officials discussed asset purchases, including progress toward the FOMC's full employment and price stability goals, and also considered how to adjust asset purchases when economic conditions are met. Officials said the Fed could reach the threshold for reducing bond purchases this year.
The minutes stated: "Looking ahead, most participants indicated that if economic developments proceed broadly as they anticipate, they judge that it could be appropriate to begin slowing the pace of asset purchases this year." The minutes added that the economy has met its inflation target and is "close to satisfied" with the progress of job growth.
Regarding the inflation issue that the market is generally concerned about, the minutes showed that participants said that recent inflation data was affected by supply bottlenecks and labor shortages, and was likely temporary. Some participants emphasized that the recent high inflation data was largely driven by price increases in a small number of categories.
Reducing bond purchases is usually beneficial to the dollar because it means the Fed will not inject a large amount of cash into the financial system, thus pushing up the value of the dollar.
In a report, a foreign exchange analyst at ING wrote: "The dollar's trade-weighted index is setting a new high for the year. This comes at a time when the US yield curve is strengthening and flattening—which usually represents a more pessimistic reassessment of the growth outlook. Therefore, although the Fed's tone is largely a downward path to reducing bond purchases, the large demand for the dollar seems to come from investors withdrawing from overseas growth themes."
On Thursday, the US Department of Labor reported that the number of initial jobless claims fell sharply by 29,000 to 348,000 last week, the smallest increase since the week of March 14, 2020, lower than the previous week's 377,000, and better than the expected 363,000.
Although the surge in COVID-19 infections poses a risk to the labor market recovery, the number of Americans filing for unemployment benefits last week fell to a 17-month low, falling for the fourth consecutive week, indicating strong job growth last month. Some economists believe that the continued decline in initial jobless claims could prompt the Fed to announce a reduction in its bond-buying program before the end of the year.
Afghanistan's Situation Changes, Gold Prices Supported
On August 15, the Taliban in Afghanistan completely occupied the capital Kabul, and the situation in Afghanistan changed drastically, increasing concerns among neighboring countries about regional security.
Daniel Pavilonis, senior market strategist at RJO Futures, said the stronger dollar put some pressure on metals. However, the turbulent situation in Afghanistan benefited gold. Gold is often used as a safe haven during times of political and financial turmoil.
Carlo Alberto De Casa, analyst at Kinesis, pointed out that the turbulent political situation in Afghanistan has brought risk aversion to the market, and investors are shifting some liquid funds to gold.
In addition, the Delta variant continues to spread globally, and the market is worried that epidemic lockdown measures will hinder economic growth, so gold is boosted by safe-haven demand.
David Merger, head of metals trading at High Ridge Futures, said: "We do have a two-sided market at the moment. Based on recent comments, the market expects the Fed to gradually reduce bond purchases, which has led to the recent relative strength of the dollar. On the other hand, we still believe there is potential support in the current gold market. We are starting to see that the Delta variant is causing some drag on the global economic recovery."
Craig Erlam, analyst at OANDA, said: "Gold has undoubtedly benefited from its safe-haven status. With the stock market falling sharply, demand for gold is back, and clearly, nervousness about the coronavirus is seeping in. It looks easier for gold prices to break through $1800 per ounce."
Jackson Hole Central Bank Annual Meeting Coming Next Week
Looking ahead to next week, the market will still face many tests, the most crucial of which are undoubtedly the Jackson Hole central bank symposium and the US PCE price index. In addition, many European and American countries will release manufacturing, service and composite purchasing managers' index (PMI) and consumer confidence index.
In terms of economic data, the market will see key PMI data from Europe and the United States. Monday's data is relatively dense, with the preliminary values of the August Markit manufacturing PMI for France, Germany, the eurozone, and the UK, as well as the preliminary values of the August Markit manufacturing and service PMI for the United States, to be released successively. On Tuesday, pay attention to Germany's seasonally adjusted GDP for the second quarter and the United States' July new home sales and the Richmond Fed manufacturing index for August. On Wednesday, the change in US crude oil inventories is the focus of the oil market, and the German August IFO business climate index and the preliminary value of US July durable goods orders will also be released. On Thursday, the focus will be on the US seasonally adjusted initial jobless claims for last week and the revised US second-quarter real GDP.
On Friday, the market will see the US July Personal Consumption Expenditure (PCE) price index, the Fed's favorite inflation indicator, along with the final value of the University of Michigan's consumer sentiment index for August.
Regarding central bank dynamics, the Bank of Korea will announce its interest rate decision next Thursday, and the European Central Bank will release the minutes of its July monetary policy meeting. However, the Jackson Hole Global Central Bank Annual Meeting (August 26-28) is undoubtedly more crucial for the market. This meeting, attended by top central bank governors and economists from around the world, is closely watched by the market to gauge clues about policy changes. Investors will be listening to Federal Reserve Chairman Powell's speech at Jackson Hole for new signs of when the Fed might announce a reduction in its bond-buying program.
The Federal Reserve said Chairman Powell will deliver a video address at the Kansas City Fed's annual Jackson Hole Global Central Bank Annual Meeting.
According to the Fed's schedule released on Thursday, Powell is set to speak at 10:00 AM local time (10:00 PM Hong Kong time) on August 27 via the Kansas City Fed's YouTube channel. The topic is "Economic Outlook".
This vague description of the speech topic contrasts sharply with last year's more specific topic, "Review of the Monetary Policy Framework." At last year's central bank annual meeting, Powell shifted the Fed's inflation regime to a flexible average inflation targeting system, sparking heated discussions in the market. Some analysts expect Powell to unveil a clearer roadmap for tapering bond purchases next week.
Federal Reserve Chairman Powell recently stated that substantial progress in the labor market will be key to the Fed eventually reducing stimulus measures.
Powell said in a virtual town hall meeting with teachers and students across the country on August 17 that while it remains unclear whether the Delta variant will further impact the economy, many sectors of the US economy have undergone significant changes since the pandemic began and led to lockdowns in the US.
Diane Swonk, chief economist at Grant Thornton, said the Fed needs to provide a roadmap for tapering bond purchases, but should also take appropriate measures if the COVID-19 pandemic is more severe than expected.
Matt Weller, global head of research at FOREX.com and City Index, pointed out that the focus is now shifting to next week's Jackson Hole symposium, where traders will be closely watching Fed Chairman Powell's keynote speech for clues on the timing of an announcement to reduce the scale of bond purchases. Weller said: "As long as there is no major economic downturn, most Fed officials seem to think that balance sheet reduction can begin this year."
How will gold perform next week?
Kitco News' weekly gold survey released on Friday showed that retail investor sentiment is deteriorating. Market sentiment fell to its lowest level in more than five months.
Analysts point out that the gold market is being buffeted by various forces as the global economy faces rising inflation and a slow post-pandemic recovery. Meanwhile, investors are trying to gauge the Fed's next move and its impact on bond yields and the dollar.
This week, 15 Wall Street analysts participated in Kitco's gold survey. Among the participants, 7 (47%) believe that gold prices should rise. The number of analysts holding bearish and neutral views are about the same, with two votes each, accounting for 27% respectively.
Meanwhile, a total of 930 people participated in the online poll of ordinary investors. Among these respondents, 428 (46%) expect gold prices to rise next week. Another 334 (36%) expect gold prices to fall, and 168 (18%) hold a neutral outlook. Retail investor confidence fell to its lowest level since March 5.
Phillip Streible, chief market strategist at Blue Line Futures, said that while gold has room to break through $1,800, the weak economic growth environment and increased deflationary threats may limit potential upside in the near term.
Streible said: "Gold performs well in inflationary or stagflationary environments. But it's more of a placeholder in a deflationary environment, competing with the dollar and the stock market."
Adrian Day, president of Adrian Day Asset Management, said that given the rebound from recent lows, gold may see some consolidation. But he added that fundamentally, the long-term outlook remains bullish. He noted that the US has lost its standing after its failed withdrawal from Afghanistan, which means people have lost confidence in everything American, including the dollar.
Ole Hansen, head of commodity strategy at Saxo Bank, said that if Fed Chairman Powell is much more cautious than economists expect about the Fed's reduction of its monthly asset purchase program at the annual Jackson Hole summit, gold prices have a chance to rise.
Mark Leibovit, publisher of VR Metals/Resource Letter, said he remains cautious on gold prices in the near term; however, he also noted that gold will rebound further from its current oversold levels.
Carlo Alberto De Casa, market analyst at Kinesis, said in a report that technically, gold prices could find their first support zone at $1,760/oz, while $1,790/oz remains a key resistance zone.
Lukman Otunuga, senior research analyst at FXTM, said in a report that if gold closes above $1,792/oz, it could open the door for gold to rise towards $1,800/oz and $1,830/oz.
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Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.