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ABC Bullion

Gold at the mercy of Fed

27 August 2021

Friday 27 August 2021

In this week's market report:

  • Gold on hold

  • Next move hinges on the Fed

  • Silver bounces off technical support

  • Inside our office this week

Shae Russell

Shae Russell,
Group Communications Manager

Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

US dollar gold price Daily chart

(Click to enlarge)

Source: Bloomberg; Updata

Gold on hold: The gold market is paused this week awaiting news from the Federal Reserve Bank meeting at Jackson Hole.  

Tight trading range: The US dollar gold price has been stuck in a tight trading range in the lead up to Jackson Hole,  a range of US$33, giving us a tight ‘low-high’ of  US$1,776 to US$1,809.

For now, we wait: Any short-term technical analysis provided today will quickly be made redundant by tomorrow morning.

  • What we can see however, is that XAUUSD (above) has reasonable support at US$1,780 (rectangle), reiterating last week’s point that this is the floor for this price cycle.
  • A symmetrical triangle pattern is revealing itself. This could force a consolidation of the gold price until a catalyst causes it to break out.

Bullish view - indecision is your advantageFrom one gold bull to another, it’s hard to not to get excited about gold under US$1,800. Some of our clients are. We’ve seen many investors this week take advantage of gold ‘stuck’ under this level as a reason to increase their gold position.

  • Experienced gold investors are using this opportunity to ‘average in’ their positions. That is, even if the price does dip in the short term, they are prioritising their long term goal of wealth accumulation over short term volatility.  

Bearish take - under pressure or profit taking? Keep your eye on managed money positions over the next couple of weeks. Gold held by exchange traded funds (ETFs) have declined in the past ten days.

  • Some 610,000 troy ounces (toz) of gold have been sold since then. This exit happened as the gold price has regained most of its losses since the flash crash. Not ominous, but potentially profit taking ahead of Jackson Hole.  

For Australians: Locally, we have a ‘bad news is good news’ situation. Last week’s currency weakness has eased, and the Aussie dollar has moved higher to US 72.38 cents.

This has capped the Aussie dollar gold price rally, and as you can see below, Aussie dollar gold has met resistance at the 61.8% Fibonacci level, though there is good support at the 50% retracement level. Overall, the Aussie dollar gold price looks to be continuing its long term uptrend.

Australian gold price
Daily chart

Australian gold price Daily chart

(Click to enlarge)

Source: Bloomberg; Updata

Gold’s next move hinges on the Fed

This year’s Jackson Hole is ‘virtual’ meeting: Ten years ago, you could argue Jackson Hole was more of an academic flex for central bankers. Today, the market sees this meeting as insight  on monetary policy.

Things the market really want to know: Is this the tapering conversation? We are mere by standers until the Fed gives us more direction.

  • Central bankers are aware of the fragility of markets and how their words influence trading. It’s unlikely they’ll want to spook them.
  • The taper tantrum is still fresh in our minds, however any ‘taper talk’ should not be confused ‘tightening’.
  • A reduction in the US$120 billion monthly bond buying program is not the same as tightening. Even if the Fed lowered the amount of bonds bought monthly — by say, half for example — that is still US$60 billion of support being provided to markets.
  • Reducing bond buying is not the same as increasing interest rates. The latter of which is tightening.
  • If you’re looking for clues in Fed speak, look to see if there are plans for tightening to follow tapering. The whole market will be looking with you.

Silver bounces off technical support

US Dollar Silver price
Daily chart

(Click to enlarge)

Source: Bloomberg; Updata

Silver bounces higher – but will it hold? Another sitting duck. Silver has seen a trading range of US$1 this week, stuck between US$22.92 and US$23.95. While that doesn’t seem like much, in percentage terms it’s about 4%, which is higher than gold’s 1.90%.

Silver is trading around US$23.50, just above natural support (as shown by the rectangle above). How silver reacts to the outcome from the Jackson Hole remains to be seen. Let’s revisit this next week.

Industrial demand for silver looks strong says report

(Click to enlarge)

Source: Metals Focus

Silver may be touching support levels, however a recent report from Metals Focus says the long term industrial demand for silver holds, writing:

‘In our view however, we have retained our positive outlook for silver industrial demand , both this year and looking further ahead, even if the global economy does face several headwinds.

‘The outlook for industrial silver offtake, both this year and further ahead therefore looks bright; not only should newer areas thrust ahead, but established uses should also enjoy steady gains, in part as avenues for thrifting and substitution look limited.’

The paper pointed to strong demand for electric vehicles and deployment of 5G infrastructure globally as a large — and increasing — consumer of silver.  

Asian demand dipped

With indecision reigning in the gold market, we’ve seen Asian demand decrease slightly. Buying has slowed down as gold went over US$1,770.

However, word has it, premiums in India have increased as 99.50% kilo bars in were in short supply for local Indian refiners.

Inside our office this week

This week silver was the metal of choice.

We were surprised to see large bars and bulk orders coming through from high net worth individuals and family wealth offices. Investor interest in the ‘other’ precious metal appears to be strong.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion