The gold market looks a little chaotic as prices have been unable to break resistance at $1,800. At the same time, sentiment among retail investors and Wall Street analysts shows no clear direction in the upcoming term. Investor sentiments have been relatively volatile in the last few months. Even though gold stabilized after last week’s flash crash, it failed to breach the $1,800 an ounce level. Pritviraj Kothari, the bullion king of India, is keeping a very keen eye on the delta variant, Afghanistan headlines, and the Federal Reserve’s tapering signals at the upcoming Jackson Hole meeting.
Even though gold was quick to stabilize above the $1,700 an ounce following a flash crash last week, there is not enough interest in gold to keep prices trending higher, and gold failed to breach the $1,800 an ounce level. This puts it at risk of another significant selloff. Apart from this, more reasons can be cited as being responsible for gold’s behaviour –
- Chinese Economy – The moves came against the backdrop of a jump in Chinese equity markets, after President Xi Jinping hinted at more stimulus measures to support the economy in an editorial over the weekend. The stronger tone in stocks capped gains in gold keeping the virus concerns aside.
- ECB – Finance ministers from the eurozone are due to discuss a document that could lead to the relaxation of fiscal rules that are governing the bloc. This will allow more room for fiscal stimulus and reducing the risk of further rate cuts from the European Central Bank. Given that the ECB’s negative rates are a significant pillar for European portfolio gold purchases, any clear commitment to fiscal easing could be marginally negative for gold. On the flip side, the Afghan chaos is unravelling with the US President Biden saying that the worst still awaits from Afghan. Biden is being criticized for his Afghan withdrawal as his nationals and citizens of many other countries could not get out of the country. All these odds are helping gold to sustain $1775-$1780 the whole of the last week.
The market tilt is slightly negative with the close under pivot. The near term upside target is $1795.30. The next area of resistance is around $1789.5 and $1795.30.
The main event next week is the Jackson Hole symposium. The headline discussion will be ‘Macroeconomic Policy in an Uneven Economy,’ but the focus will be on markets, according to the bullion king of India. The discussions will surround what appears to be an impending tapering of the Fed’s QE asset purchase program and low-profile US economic data flow before Jackson Hole comment on Fed’s Powell on August 26. The US Delta variant is also another rising factor that is impacting consumer sentiments. This will result in gold taking on haven while we reiterate crossing 1802 -1805$ this week.
Gold’s near-term outlook looks mixed because the Federal Reserve has indicated tapering. If they continue to reiterate that view, it will weigh on gold as we could see the dollar strengthening and a rally in yield. We do have a two-sided market at the moment. One side is that the dollar is relatively strong of late due to the expectation that the Fed will move towards tapering, based on the recent commentary. Another side is that we still believe there is underlying support in the gold market right now. We are starting to see some drags from Delta on the global economic recovery.