Summary:
- Gold prices post modest gains but price action seen flat
- Next week’s Janet Yellen speech and US GDP revision will be the key catalyst for gold
- Markets doubtful of a September rate hike, as FOMC minutes, fail to provide any clarity
- NY Fed President Dudley maintains hawkish view on September rate hike
Gold was trading flat on Thursday, settling the day at $1352.26 with the day’s price action staying relatively flat, in comparison to the declines posted by the US dollar. While the euro and the British pound posted strong gains on the day, gold was seen caught trading sideways within the $1360 – $1347.20 resistance level. In terms of the economic data, the Philly Fed manufacturing index showed a modest improvement, rising to 2.0 and the weekly unemployment claims fell to 262k beating analyst forecasts.
The main catalyst for gold prices this week were the comments from NY Fed President, Dudley and Wednesday’s release of the FOMC meeting minutes. With gold prices staying sensitive to interest rate movements, this week’s FOMC meeting minutes turned out to be a non-event with Fed members staying divided and thus providing no clear outlook on the future of interest rates. While there have been speeches from Dudley and Lockhart, the markets have brushed aside any prospects for a September rate hike. The US economic data has been hit with nearly two weeks of weak economic data that casts a gloomy picture.
The US dollar’s weakness was also one of the larger themes this week, and as noted in our weekly analysis earlier this week, the break of the bearish flag pattern sent the ICE Future US dollar index down to 94.36, marking a decline to the 127.2% Fibonacci extension level. Further downside is expected with the US dollar likely to fall towards 93.52 region to mark a completion of the bearish flag, however, we could expect a short term bounce off the current 94.36 level back to the broken support at 95.00 to establish resistance.
Janet Yellen Speech, US Q2 GDP revision
Next week, the Jackson Hole symposium will be a closely watched event as central banker speeches come into focus. The Federal Reserve Chair, Janet Yellen is scheduled to speak on Friday which will most likely turn out to be the main catalyst for gold prices. Also on Friday, the US second estimate for the GDP data in the second quarter is up for revision which could prove to be another event of note. Following the preliminary report which showed that the US economy expanded at a slower pace of only 1.20%, any upward revisions to the data could be taken as supportive of any hawkish narrative from Ms. Yellen.
NY Fed Dudley: Jobs, not GDP is the Fed’s mandate
The NY Fed president Dudley appeared twice this week with his remarks unchanged since Tuesday’s comments. Dudley maintained an optimistic view on the US economy noting that a rate hike in September was possible. On Thursday, in a Q&A session, Dudley said, “We are getting somewhat closer to full employment. At the end of the day, I put a lot less weight on the GDP print than I do on what’s actually happening in the labor market.” Dudley put it rather bluntly noting that “maximum employment, not GDP growth” was part of the Fed’s mandate. “It’s really the jobs that are the metric that drive the decision about when the timing is right to snug up interest rates,” Dudley said.
Gold – Struggling to break free off $1360 – $1347.20 Resistance
From a technical perspective, gold prices have failed to break out from the $1360 – $1347.20 resistance level. The price action over the last two weeks show that gold made repeated attempts at the resistance level. While gold managed to close inside this resistance level, the price action isn’t quite convincing yet. Support is seen at the $1315 – $1300 level, which could most likely be the downside target if prices breakdown below $1347.20. The broader sideways market is likely to continue with next Friday’s data which includes Ms. Yellen’s speech and the second revision to the GDP most likely to provide the much-needed catalyst for gold’s bias to be established.
