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What Will Powell Do at Jackson Hole and What Will It Mean for Gold? Analysts Weigh In

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(Kitco News) - With the Federal Reserve's September rate decision looming, Chair Jerome Powell is likely to leave a lot of room for the central bank to maneuver during his address at the Jackson Hole symposium on Friday, according to analysts.

Analysts do not see Powell opening the door to more than a 25-basis-point cut in September during his Jackson Hole address titled "Challenges for Monetary Policy."

Powell's appearance on Friday could be guided by the same theme as his July press conference, which was not committing the Fed to anything specific, Rhona O'Connell, INTL FCStone head of market analysis for EMEA and Asia, told Kitco News.

"What Powell was doing at that July 31st press conference lays the groundwork for Friday. He, very prudently, did not commit the Fed. He gave himself breathing space, which is a sensible thing to do because he is not in control of the global economy. And he has to give the Fed the flexibility to deal with developments as they come along," O'Connell said.

During the Jackson Hole address, Powell is likely to open the door to another 25-basis-point cut but avoid promising anything more.

"Powell will be aware of the fact that the first rate cut in July almost triggered uncertainty amongst the consumers because it raised concern around whether they should be spending right now," O'Connell noted.

The Fed wants to get more stimulus into the market, but avoid any fear that could postpone any big purchases.

"Another 25 basis points is probably prudent to get more stimulus into the market, but a 50-point cut might send red flashing lights into consumer sentiment and might be self-defeating," O'Connell added.

Robust U.S. economic data will also force Powell to avoid "paining [the Fed] into another corner," BBH head of global currency strategy Win Thin said on Monday.

"While the door has and should be left open to further action, we do not think Powell will paint the Fed into a corner again, not when the data suggest otherwise," Thin wrote. "Indeed, the picture painted last week by the U.S. data is a good one. Headline retail sales rose 0.7% m/m vs. 0.3% expected … The so-called control group used for GDP calculations jumped 1.0% m/m vs. 0.4% expected."

Plus, the Federal Reserve is still trying to figure out how it should be reacting to the global trade tensions, Thin added.

"No one can really say what the Fed's likely reaction function is right now with any degree of confidence. Markets clearly believe the Fed will bail Trump out again, but we are not so sure. We do not think that the Fed should reward bad trade and fiscal policies with rate cuts," he said.

Meanwhile, U.S. President Donald Trump has not let up when it came to putting more pressure on the Fed to cut rates more aggressively.

"The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well," Trump said in a Twitter post.

BBH, however, views the Fed as reluctant to cut rates again so soon, adding that the central bank will want to observe the actual impact of the trade tariffs first.

"We do not think the Fed wants to be seen as caving to Trump's demands. The Fed is also correct to note that the impact of the tariffs has yet to be fully felt and so remains unknown," Thin said.

Powell will most probably be more hawkish than markets are anticipating, said Pepperstone head of research Chris Weston. "With a 32% chance of a 50bp cut priced into the rates markets for the September FOMC, it feels on balance, that if anything, Powell will be more hawkish than current pricing is suggesting and it could be a USD positive affair," Weston said in a note on Monday.

On Monday afternoon, however, the market sentiment seemed to shift towards a less dovish one. At the time of writing, markets were pricing in a 95% chance of a 25-basis-point cut and just a 5% chance of a 50-point cut, according to CME FedWatch Tool.

What Does All Of This Mean For Gold?

A more hawkish Powell could translate into more gold price consolidation this week, analysts pointed out.

"At some point when the price fails to deliver further momentum, then you will start seeing some profit-taking. To be up that much in such a short period of time, you would normally have expected a bigger pullback. We hadn't had one," O'Connell said.

It will still be a bull market, added O'Connell, highlighting the next support being at $1,480-$1450.

"Market that has got enough uncertainty. Any downturn will be a correction. We've changed range in gold. In the current environment, it is impossible to call a bear market. $1,600 may well happen, but we won't get that in a straight line," she said.

This week, gold is battling against rebounding equity markets and risk-on sentiment, Kitco's senior technical analyst noted.

"Gold and silver prices are lower in midday U.S. trading Monday, as trader and investor risk appetite has up-ticked markedly to start the trading week … Bull markets, even the strong ones, don't see prices go up every day. In fact, corrective chart consolidation is healthy and suggests the uptrend can be sustained," Wyckoff said.

At the time of writing, December Comex gold was trading at $1,507.20, down 1.08% on the day.

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