Up we go: After two weeks of muted trading, gold rose on the back of Jackson Hole. Once finished, Au jumped from US$1,791 to US$1,81, a 1.50% increase. Au has since settled. The positive news here is the yellow metal remains above the US$1,800 level, resting at US$1,813 per ounce at the time of writing.
Which way next? Indecision remains. The gold price is leaning on the 200-Day Moving Average (MA) of US$1,809. Not particularly useful right now, but worth watching.
Tight trading range: Au is stuck in a tight range. Aside from the jump higher on 27th August, it’s trapped between US$1,800-23, giving us a range of US$23.
When doves cry: Jackson Hole was anticlimactic. Comments from Federal Reserve Bank chairman, Jerome Powell, were unexpectedly dovish. Tapering ‘may’ begin in 2021, but the Fed are in no hurry to raise interest rates.
- As I wrote last week tapering is not tightening, and that’s the announcement investors should be looking for.
- With tightening off the table, it’s no surprise to see the gold price elevated.
- According to Bloomberg, ‘The economy has now met the test of “substantial further progress” toward the Fed’s inflation objective that Powell and his colleagues said would be a precondition for tapering the bond-buying, while the labour market has also made “clear progress,” the Fed chief said Friday in a virtual speech to the Kansas City Fed’s annual Jackson Hole symposium.’
We have reasons to be bullish: Frankly the lack of commitment to tapering is likely to be good for the gold price in the short term.
Bears, there is resistance ahead: It’s still too soon to get excited about a major gold rally. As discussed in today’s interview (below), gold has resistance around US$1,830. Moving through this level would stir the bulls, falling from it will wake the bears.
Sleight of hand: While all eyes were on what may-or-may-not happen at Jackson Hole, market commentary overlooked the looming US debt ceiling debate.
MarketWatch pointed out a ‘taper tantrum’ may be the least of the market’s problems, when ‘republicans have already made it clear that the debate over the debt ceiling will be a partisan one’ and;
‘Democrats that they will have to find a way to raise the debt ceiling without republican support if they hope to pass President Biden’s $3.5 trillion infrastructure package which includes money for roads, bridges, and tunnels as well as for education, health, social welfare and a green economy to combat climate change. The chaos of a government shutdown coming on top of the delta variant would likely be enough to cause Powell and the Fed to delay the taper even if the number of jobs created in August, September and October exceeds expectations, satisfying one of the two criteria for the central bank to reduce its support for the economy.’
Australians, we have some good news: If you’ve held off buying gold because of the US dollar gold price rally, then the Aussie dollar has given you a reason to wade in.
The rapid 1.60% gain in the Australian dollar this week (from 72.82 US cents to 74.02 US cents), has caused the Aussie dollar gold price to fall back under AU$2,500, to AU$2,450.
In other words, our currency rising means gold has gotten cheaper per ounce for us.
Gold’s best month is here
MarketWatch knows a fine looking 1kg gold bar when they see it: Our friends over at MarketWatch crunched the numbers for you this week, with one of their editors noting that since 1973, the gold price tends to have a ‘better than average’ performance in September, writing:
‘There is no guarantee that gold will gain in September, of course. Because of the significant variability in the month-by-month results, gold’s historical pattern of better-than-average performance in September is statistically significant at the 93% confidence level, according to my calculations.’
Why does gold perform well in September? The data stacks up as gold’s best month, but there’s no real scientific reason. It could be hedging demand around the Halloween Effect on stocks…it could be wedding season in India as traditionally new gold is gifted…or it could be ‘negative investor sentiment due to shorter daylight time’.