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Gold price is betting on Powell's patience at Jackson Hole, will he deliver?

Kitco News

(Kitco News) All eyes are on the Federal Reserve Chair Jerome Powell's Jackson Hole speech Friday morning, with gold bulls betting on more patience from the central bank when it comes to the highly anticipated tapering announcement.

Investors are still on the fence whether or not Powell might reveal a tapering plan at the Jack Hole Symposium, which is being held virtually this year. However, the release of the more cautious July FOMC meeting minutes has shifted the tapering timeline to the end of the year.

"It's all gone very quiet in the markets, which is hardly surprising under the circumstances. The combination of light news flow, few economic releases and caution ahead of the Jackson Hole event has taken all of the excitement out of the markets. Instead, it's been replaced by nervous anticipation as we wait to see what the Fed will do next," said OANDA senior market analyst Craig Erlam. It is unlikely the markets will get any clarity on the Fed tapering its $120 billion in monthly bond purchases come Friday. In light of slightly disappointing macro data and the quickly spreading delta variant, Powell is more likely to opt for caution, Erlam added.

"I wouldn't be surprised if this turns out to be one big anticlimax, with Powell saying very little of note and instead insisting that the data will dictate any decisions in the upcoming meetings. In other words, the Chairman may simply kick the can down the road and buy the central bank a few more weeks," he said on Tuesday.

Strategists at TD Securities are also not expecting any earth-shattering news when it comes to tapering.

"We expect the Chair's speech to echo the latest July meeting minutes, suggesting that QE tapering is likely by year-end, but we don't expect a September announcement. This leaves November and December as likely timelines for the taper announcement," the strategists said in a note.

No clear announcement would be good news for gold, which has been sitting around the $1,800 an ounce, waiting to make a move one way or the other.

OANDA's senior market analyst Edward Moya noted that Powell's speech would be critical for the gold market.

"Friday will be a make-or-break moment for gold bulls, but the narrative post the last policy meeting suggests Powell will likely avoid making any firm commitments about the timing of tapering, but confirm it will be announced before the end of the year," he said. "The $1,850 level is everything for gold and if after the Jackson Hole Symposium, prices can't make a fresh August high, bullion investors might be quick to the sidelines."

Until Friday at 10 a.m. E.T. time, when Powell is scheduled to speak, gold is likely to continue to trade sideways, said Commerzbank analyst Daniel Briesemann.

"Few market participants appear willing to make any firm commitments before the speech Fed Chair Powell is due to give on Friday. Not much is likely to happen ahead of his speech … The U.S. dollar has had considerable influence on the gold price in recent weeks," Briesemann said.

Some analysts, however, are not ruling out some new hawkish sentiment coming out of Powell's speech.

"In order to keep this proposed timeline, Chair Powell should make it clear that tapering discussions are ongoing even as new data suggest further progress in meeting its dual mandate," said BBH Global Currency Strategy global head Win Thin. "Our current call is for an explicit tapering announcement at the September FOMC, tapering of $20 bln in USTs and $10 bln in MBS at each meeting starting November 3, and completion by March 2022. If the economy continues to develop as the Fed expects, then this would allow for rate a waiting period of 6-9 months before lift-off in Q4 2022."

Jackson Hole Symposium officially begins on Thursday and ends on Saturday. This year's topic is "Macroeconomic Policy in an Uneven Economy."

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