Gold: Load Up The Truck!

Summary:

Federal Reserve Chair Jerome Powell is expected to adopt a moderate and noncommittal stance in his annual address at the Jackson Hole retreat this year. The speech is anticipated amid market nerves, with stocks selling off and Treasury yields climbing. Although inflation rates have eased and the economy seems stable, experts predict Powell will avoid making bold policy declarations to keep his options open. Powell is tasked with reassuring the market about the Fed's commitment to controlling inflation without triggering a recession. Financial analysts don't expect Powell to provide specific guidance on the long-term trajectory of interest rates, known as the "r-star" value. The overarching sentiment is that Powell will take a cautious approach, balancing between past aggressive stances and the need for future flexibility.

Fundamentals:

Since becoming the Federal Reserve Chairman in 2018, Jerome Powell has used his annual speeches at the Jackson Hole conference to outline a variety of policy directions. However, this year, with slowing inflation and a steady economy, many expect him to adopt a more balanced and cautious approach. Joseph LaVorgna, chief economist at SMBC Nikko Securities America, suggests that Powell will aim for a middle-ground position to keep his options open and avoid getting cornered into any particular policy direction.

While markets are apprehensive, analysts like LaVorgna believe that Powell doesn't need to be too assertive given the current economic circumstances. The market is also not expecting imminent rate cuts, something that the Fed has been fighting against for much of the past year. Yet, Powell has to carefully assure markets that past mistakes on inflation will not be repeated, without endangering economic stability.

Inflation rates have seen a decline, but there are still signals that this trend could reverse. Despite this, Powell is expected to focus on the Fed's determination to tackle inflation, without claiming that the issue has been entirely resolved. Analysts also do not anticipate Powell making any big policy moves, particularly regarding the long-term natural level of interest rates, or "r-star." Therefore, Powell's approach is likely to be cautious and balanced, aimed at maintaining policy flexibility.

Is the Feds Neutral Stance, Bullish to Gold?

The relationship between interest rates and the price of gold is often complex and can be influenced by a variety of factors, including investor sentiment, inflation rates, and global economic conditions. Traditionally, gold is considered a hedge against inflation and economic uncertainty. When interest rates are low or neutral, the opportunity cost of holding gold, which doesn't offer a yield, is lower compared to interest-bearing assets like bonds. Therefore, a neutral stance on interest rates might be seen as supportive or bullish for gold prices, particularly if the market had been expecting a more hawkish stance from the Federal Reserve.

However, it's essential to note that other factors can play a significant role in determining gold prices. For example, if the Federal Reserve adopts a neutral stance due to a robust economic outlook, the demand for safe-haven assets like gold might decrease, putting downward pressure on prices. On the other hand, if the neutral stance comes from uncertainty or concerns about economic stability, it could bolster gold's appeal as a safe haven.

In summary, a neutral stance on interest rates could be bullish for gold, especially if it leads to lower real interest rates or stems from economic uncertainty. However, the impact on gold prices will also depend on various other factors, including market sentiment and the broader economic context.

Let's take a look at our weekly standard deviation report and see what short-term trading opportunities we can identify.

GOLD: Weekly Standard Deviation Report

Sep. 02, 2023, 7:24 PM ET

Summary

• Gold futures closed at 1967, above the 9-day SMA, indicating bullish vibes for now.
• Price momentum is on the rise, but dropping below the VC Weekly Price Momentum Indicator may signal a shift to neutral.
• Consider taking profits in the 1945-1922 range if going short, or set stops at 1922 and aim to cash out between 1985-2002 if going long.

Hey team,

Trend Momentum:

Hope you're all doing well this holiday weekend! Let's get into the gold stuff. The market is looking hot this week with futures closing at 1967. We're above the 9-day SMA at 1960, so it's bullish vibes for now. Just don't forget, a dip below that SMA will turn the mood sour real quick.

Price momentum:

Price momentum's on the up, too. We're coasting above the VC Weekly Price Momentum Indicator, which was at 1962. But you know the drill-if we drop below that, it's time to switch gears and think neutral.

Price indicator:

Got your trading hats on? If you're going short, consider taking some profits if we hit the 1945 - 1922 range. If you're rolling with the bulls and going long, set your stops at 1922, and aim to cash out between 1985 - 2002.

Cycle and Strategy

Don't snooze on the next cycle date; it's September 15. As for strategy: if you're long, start thinking about taking profits around 1985 - 2002; if you're short, do the same when we hit 1945 - 1922.

Stay sharp!

Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.

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