Gold price retreats after Fed speech

(Kitco News) Gold market price action takes a breather on hawkish comments from Federal Reserve speakers, with prices moving further away from the $1,800 an ounce target.

The price of gold hit a daily high of $1,805 an ounce on Tuesday morning, driven by heightened geopolitical tensions as House Speaker Nancy Pelosi landed in Taiwan amid threats from China of “serious consequences” for his visit.

However, gold gave up all of its daily gains following the Fed’s aggressive rhetoric, with December Comex Gold Futures last traded at $1,777.10, down $10 on the day.

“Gold pared gains after Wall Street grew optimistic that tensions between the world’s two largest economies would spin out of control,” said Edward Moya, senior analyst at OANDA. “A strong dollar is also weighing on gold as the greenback’s pullback over the past two weeks appears to be over.”

Chicago Fed President Charles Evans said on Tuesday that the U.S. central bank would likely continue to use oversized rate hikes until it sees inflation coming down. Evans added that he wasn’t ruling out a 50 basis point hike in September.

“If you really thought things weren’t getting better… 50 (basis points) is a reasonable estimate, but 75 could also be fine. I doubt more is needed,” he told reporters on Tuesday. .

San Francisco Fed President Mary Daly also spoke on Tuesday, saying inflation remained a problem. The Fed has “a long way to go” before achieving its price stability targets, especially after the pace of inflation in June accelerated to 9.1% from a year ago, Daily said in a LinkedIn interview. “We are still resolute and completely united,” she said.

It all depends on the data going forward, Daly added, echoing statements from Fed Chairman Jerome Powell last week. “I’m really looking to see what this data tells us to see if we can slow the pace of rate hikes a little bit, or if we need to continue” outsized hikes, Daly said.

Evans and Daly aren’t voting members this year, but their comments reveal some behind-the-scenes thinking.

The hawkish comments come after the US central bank raised rates by 75 basis points last week for the second straight time. At the time, Powell also said that the United States was not in a recession, meaning another “unusually large” rate hike could be in store in September, followed by a slowdown in tightening.

“I don’t think the United States is currently in a recession. There are too many sectors of the economy that are performing too well. I would point to the very strong labor market. [It is] It’s true that growth is slowing down… [But generally]GDP figures [are] significantly revised. You tend to take early GDP reports with a grain of salt,” Powell said, referring to the first reading of the second-quarter GDP report.

From a data perspective, the signs point to still problematic inflation figures and a slowing economy.

This week, markets are still digesting the Fed’s favorite gauge of inflation – the personal consumption expenditure price index – up 6.8%, the largest annual rise since the 6.9% posted. in January 1982.

Additionally, second-quarter US GDP fell 0.9%, marking the second consecutive quarterly contraction and meeting the technical definition of a recession.

Going forward, Powell said he wants to make decisions on a meeting-by-meeting basis and move away from providing clear guidance about the exact size of upcoming rate hikes. Two more inflation and labor reports will be released ahead of the Fed’s September meeting.

For gold, a strong US dollar will continue to be a barrier to higher prices, Moya noted.

“The US dollar has received a major boost as the Fed’s latest round supports the idea that the interest rate differential will remain broadly in favor of the dollar,” he said. “Geopolitical concerns could also attract safe-haven flows mainly into Treasuries, which will support the dollar. Gold is again trying to be a safe haven and this latest round of international risks to the outlook will allow us to find out quickly if he becomes one.”

For gold to see a noticeable change in trend and a lasting bullish rally, the precious metal needs to be trading well above the $1,800 per ounce level, according to strategists at TD Securities.

“The prevailing risk tone in the market related to the US-China relationship further supported the yellow metal via modest safe-haven flows,” they said on Tuesday. “Nevertheless, for further meaningful short CTA trend follower coverage to take place, gold prices would need to close north of $1,820/oz to trigger a shift in trend signals… We see risks that Fed speakers may push back on market expectations for a Fed Pivot debut.In that sense, gold markets are facing a huge amount of complacent length held by prop traders, who still hold the headline dominant speculative force on gold.