Although inflation “cooled down”, at the Jackson Hole conference, Fed Chairman Powell still affirmed that he would continue to sharply increase interest rates. This will likely have a negative impact on gold prices next week.
This week, the international gold price recovered in some early sessions of the week when it increased from $1,727/oz to $1,765/oz, but then fell sharply to $1,734/oz after the Fed Chairman’s speech. Powell at the Jackson Hole conference.
In Vietnam’s gold market, the price of SJC gold bars listed by DOJI Group also fell from 67.1 million dong/tael to 66.75 million dong/tael with relatively quiet trading volume.
At the recent Jackson Hole conference, the Fed Chairman said that there will be no pivot on monetary policy, so the US basic interest rate will increase for a longer time than the market expected.
Mr. Powell also did not rule out another 75 basis point increase in interest rates at the upcoming meeting in September, stressing that this will largely depend on the US macroeconomic data to be released in the coming weeks next time.
In particular, the Fed Chairman wants to avoid the mistakes of the 1970s, which is why he plans to take drastic action now. “Former Fed Chairman Paul Volcker successfully fought inflation in the early 1980s after many failed attempts to reduce inflation over the previous 15 years. Our aim is to avoid that failure by acting with determination now.”
The above comment of the FED Chairman shows that the FED will not stop the current monetary tightening cycle after raising about 50 or 75 percentage points in interest rates next September, but may continue to increase interest rates. at least 2-3 more times. After that, the Fed will keep interest rates at a high level for a while before the end of the current rate hike cycle, and this will likely have a negative impact on gold prices in the short term.
Bart Melek, chief strategist at TD Securities, also said that Fed Chairman Powell’s priorities will clearly focus on strong measures to avoid mistakes of the past. “The Fed is looking at what happened in the 1970s and early 1980s. It seems like the Fed wants to keep interest rates higher for longer. Many people think that the Fed will cut rates slightly as the economy grows. America declined, but now it doesn’t seem like that will happen,” said Bart Melek.
Gold price next week may continue to fall because the Fed Chairman “speaks loudly” at the Jackson Hole conference.
However, the US economy continues to send bad signals, notably, US new home sales in July decreased by nearly 30% compared to the same period last year; Manufacturing PMI also fell to a 2-year low… While the personal consumption expenditures (PCE) index in July continued to fall to 4.6% from 4.8% recorded in May. 6. This index combined with the July CPI dropped to 8.5%, suggesting that US inflation may have peaked and continued to decline in the coming months.
From the above fact, the Fed may be cautious in continuing to raise interest rates. Therefore, the price of gold is still likely to increase strongly in the long term, especially when the Fed starts to end the current interest rate hike cycle.
Mr. Bart Melek said that in the short term, gold price may continue to correct and consolidate. Accordingly, it is likely that gold price will drop below 1,700 USD/oz next week due to the impact of the Fed Chairman’s comments at the Jackson Hole conference. “Gold price next week will have important support at $1,670/oz. If it sustains above this level, gold price will recover next week. On the contrary, if the level of 1,670 USD/oz is broken, gold price next week is at risk of falling further and heading towards the 1,600 USD/oz zone,” said Mr. Melek.
Meanwhile, the US jobs report will also be released next week. This report will also have a significant impact on the Fed’s interest rate direction. If the number of US jobs increases above 350,000, it will negatively affect gold prices next week. On the contrary, gold price next week will have more recovery momentum.