Powell's dovish Jackson Hole comments give gold some room to move higher next week
(Kitco News) - Bullish sentiment in gold has picked up, but there is still a lot of uncertainty surrounding the precious metal. Meanwhile, prices will be sensitive to economic headlines next week, according to some analysts.
According to the latest Kitco News Gold Survey, a majority of retail investors and Wall Street analysts have turned bullish on gold next week as the price has managed to push solidly above $1,800 an ounce. Federal Reserve Chairman Jerome Powell presented no clear plan for the U.S. central bank to reduce its bond-purchasing program during his much-anticipated Jackson Hole speech.
Powell said he sees the potential for the Federal Reserve to taper its purchases this year; however, he also noted that there is still some uncertainty surrounding the COVID-19 pandemic and the spreading Delta variant.
"My view is that the 'substantial further progress' test has been met for inflation. There has also been clear progress toward maximum employment. At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant," Powell said in his prepared remarks. "We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions."
According to analysts, Powell's comments were more on the dovish side, creating some selling pressure in the U.S. dollar, which has been positive for gold.
According to the latest Kitco News survey results, a majority of analysts expect Friday's momentum to continue through next week.
This week 16 Wall Street analysts participated in Kitco News' gold survey. Among the participants, nine, or 56%, called for gold prices to rise. At the same time, four analysts, or 25%, called for lower gold prices next week. Three analysts, or 19%, were neutral on gold in the near term.
Meanwhile, A total of 801 votes were cast in online Main Street polls. Of these, 398 respondents, or 50%, looked for gold to rise next week. Another 243, or 30%, said lower, while 180 voters, or 20%, were neutral.
Last week there was no clear direction from either Wall Street Analysts or Main Street investors. Sentiment in the gold market was at its lowest point since the start of the year. However, Powell's comments have breathed new life into the market. December gold futures last traded at $1,817 an ounce, up nearly 2% from last week.
Gold prices are trading near their highest level in three weeks and have completely recovered from its recent flash crash.
According to some analysts, Powell's latest comments show that there is still much uncertainty surrounding U.S. monetary policy.
"Powell didn't say anything that we did not expect, although the market may be relieved that higher interest rates are still at some undetermined point in the future, despite higher inflation. Given the huge increase in bond purchases just this month, the Fed has plenty of opportunities to 'begin to reduce" its purchases without making any dent in the Fed's balance sheet," said Adrian Day, president of Adrian Day Asset Management. Day said that he is bullish on gold for next week.
John Feneck, founder of Feneck Consulting, said that he also think's it clear that monetary policy won't be tightening anytime soon. He added that along with gold, he is buying the dip in the precious metal mining sector.
"Total employment is still 6 million jobs short of Feb 2020 levels," he said. "We believe 'tapering' is not 'tightening,' and we are buying this dip in mining equities."
Adam Button, head of currency strategy at Forexlive.com, said that he sees more potential for gold as the U.S. dollar remains under pressure following Powell's comments.
Although most analysts are looking for higher prices next week, there is some uncertainty surrounding the market's bullish momentum.
Phillip Streible, chief market strategist at Blue Line Futures, said that although he expects to see higher prices next week, any rally could be a selling opportunity ahead of Friday's nonfarm payrolls numbers.
He added that strong employment numbers could send gold prices back down to their recent lows.
"I don't think investors missed the dip to load up on gold," he said. "Gold will be spooked by economic data for the next few weeks," he said.
Marc Chandler, managing director at Bannockburn Global Forex, said that the gold market appears to be getting ahead of itself ahead of Friday's employment report.
"I would look for a further bounce to sell gold early next week on follow-through buying into the 1820-1830 area," he said.