GoldPrice.

Happy Friday, traders. Welcome to our weekly market wrap, where we take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices—and may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.

Gold prices have endured a little bit of up-and-down in the bond markets this week and made it to the Jackson Hole FOMC event we’ve been waiting for all summer. The result of Fed Chairman Jerome Powell’s much-anticipated remarks has been a strong return of the “reflation” trade that drove US markets for much of Q2, including a sharp end-of-week rally for the yellow metal.

So, what kind of week has it been?

Before we crack into the big Fed news of the week, it’s worth looking at the days prior to contextualize where gold price and markets and general were positioned before Friday morning. As we expected, market participants were mostly happy to sit on their hands this week in anticipation of Powell’s Jackson Hole remarks since there wasn’t a super strong consensus about which way the Chairman might lean; But there was some shifting in US treasury markets that impacted gold pricing midweek.

• News began breaking Tuesday afternoon that the previously gridlocked coalition of House Democrats were reaching an agreement that, once realized, allowed budget planning and the White House’s $4.1 Billion economic plan to move forward in the legislative process. This signal towards greater fiscal stimulus and spending started US Treasury yields moving higher, and the 10-year Note’s rising rates created a headwind for gold prices.
• The yellow metal slipped a bit ahead of the daily global market reset, and the move accelerated once trading re-opened for Wednesday’s book for business. The US Dollar joined bond yields in the move higher when Asian markets opened, pushing gold’s spot price below $1800/oz; A similar move repeated with Wednesday morning’s market open in New York before the yellow metal found reliable support at $1785.
  
  • By then, the benchmark 10-year yield had moved risen back to the recently sensitive mark of 1.3%.

Thursday’s trading saw investors and managers back in a defensive hold, as charts and markets held relatively flat ahead of Friday’s Fed release.

After a long summer of waiting to see whether or not the FOMC would use Chairman Powell’s Jackson Hole speech as a delivery lane for new forward guidance about when asset purchase tapering will begin, and a final week with palpably higher “will they or won’t they?” uncertainty: It turns out they didn’t. Kind of.

In his keynote address to this year’s (virtual) central bank symposium, Powell acknowledged that the rising rate of inflation has met the Fed’s standard for “substantial further progress” towards a level of economic recovery from which the FOMC would feel it appropriate to start withdrawing monetary stimulus—although, vitally, the labor market recovery has not yet cleared that bar.

• Still, according to Powell, the Fed does recognize that the labor market has been on the right path and “if the economy evolved broadly as anticipated [going forward], it could be appropriate to start reducing the pace of asset purchases this year.”
• The major (and strengthening) downside risk—as Powell acknowledged and we all know well—is the surging proliferation of delta variant infections, hospitalizations and deaths that could drag the US economy back a few, or several, paces.
• So, after spending much of this year expecting the Fed might announce that they would begin the taper by the end of this year, the moment arrived and we’ve been left with the FOMC (via Powell) only conceding that they could reduce that line of monetary stimulus before 2022. Place your bets!

As any glance at gold’s chart will tell you by now, the news has been a boon to the yellow metal’s spot values. Powell’s remarks ushered back in a resurgent “reflation” traded across US markets in general, in fact: the US stock markets’ key indexes are all up at or near new highs on Friday afternoon, while Treasury bond prices are climbing as well (driving yields lower, with the 10-year benchmark falling back towards that 1.3% level.) The initial tailwind for gold saw it easily breaking resistance at $1800, before reaching well above $1810/oz through the morning’s action.

• At the time of writing, early on Friday afternoon, prices are making efforts at consolidation around $1815.
• The market reaction to Powell’s address has been fairly predictable (that is, predictable once you knew what he would say.) One year on from announcing a new framework for the Fed and its plan of action with regards to accommodative monetary policies, the central bank is sticking to it. Inflation has risen to meet the target range(s)—though Powell reiterated the FOMC view that the sharpest pressures will ease—but the Fed will keep their foot on the gas until their target levels for the US labor market are reached as well. For the time being, this means the easy money stays in place, fueling the reflation trade: equities up; Commodities too, and inflation hedges (gold being both.)

Powell attempted to lay another marker down this morning, one that’s been discussed but before now has never (I don’t think) been included in communication from the Fed as high-profile as the Jackson Hole keynote. As we’ve discussed often, the mechanism through which expectations for the Fed’s taper influence gold prices is our understanding that the central bank plans to completely taper-off asset purchases ahead of the first/next move to raise rates. The closer we get to the taper starting, the closer we get to higher interest rates and a less bullish environment for gold.

In Friday morning’s remarks, Powell made the FOMC’s most public-facing attempt to decouple the timing of the taper from the timing of rate hikes, suggesting that the standard for raising policy rates is much higher than the standard for ending asset purchases; Which would imply that the final round of tapering would not necessarily be followed immediately by the first rate hike.

This is a very strong effort to de-link tapering and hike timing (which is virtually impossible to do) pic.twitter.com/ubyQ0lH3SF

— Luke Kawa (@LJKawa) August 27, 2021

• This is, understandably, bullish for gold just as it has been for stock prices on Friday. I expect Powell and other officials will start echoing this assertion more often in the coming months, so we’ll see if it has the same market effect with repetition.

It’s clear that, for the next month (or two?) at least, tracking the strength trajectory of both the US labor market and the delta variant’s spread will be the key to modeling Fed policy and stimulus plans for the rest of 2021.

• Other inputs might weigh on or lift gold prices over the coming weeks; But these will almost certainly be the most important.
• And, what do you know? We have a new Jobs Report due at the end of next week…

For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see everyone back here on Monday for our preview of the week ahead.