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LAWRIE WILLIAMS: Gold stuck in limbo but a destabilised world may intervene

We had thought that the gold price might breach the $1,800 psychological level, perhaps this week, but the market, particularly that in the U.S. seems to have other ideas.  As we approach the week’s end, $1,800 gold seems to appear less and less likely by the weekend, with some price strength in the Asian and European markets being quickly brought back down when the U.S. markets open.  This seems to be a daily occurrence at the moment.

So the past week has seen the gold price rise to the mid-$1,790s in European trade, but has been brought down as low as the mid-$1,770s in New York, before making small recoveries with $1,800 gold so far remaining comfortably out of sight.  This situation could well continue up until the Fed’s Jackson Hole Economic Symposium at the end of the month (August 26-28), where there will be a confluence of global central bankers expressing their opinions as to how to proceed, and reignite their economies.  Until then the gold price will likely fluctuate in a $1,770 to $1,795 range dependent on U.S. data releases and statements from senior Fed executives ahead of the Jackson Hole meeting and post the July FOMC deliberations.

At the moment both data releases on employment, the inflation rate and FOMC member statements have not been particularly gold supportive, but could change in the light of the latest U.S. coronavirus infection and mortality figures.  Yesterday the U.S. reported over 150.000 new COVID-19 infection cases and more than 1,000 new deaths.  These statistics appear to be growing by the day as the more infectious Delta variant spreads across the country, particularly in vaccine resistant areas where there is less immunity as a result.

Inflation, and how to deal with it, as the world perhaps begins to recover from the economic effects of the coronavirus, will be the most important factor under discussion.   There have already been indications from U.S. Fed chair, Jerome Powell, that the Central Bank may begin tapering its bond-purchasing programme before the year end and perhaps start to raise interest rates by the middle of next year.  These potential moves have been something of a dampener on the gold price and have led to a marginally stronger dollar, which itself tends to be gold price negative.

The Jackson Hole Symposium could lead to a somewhat similar consensus materialising among Central Bank heads for countries which see themselves as being in a similar economic position as the U.S.  If so, this could serve to derail any positive points for gold which might arise out of the meeting.

But, as we’ve pointed out above, even the U.S. seems to be in a deteriorating position on new virus infections and deaths.  It is, according to the latest announced statistics – many of which are not exactly reliable so should perhaps be taken with a degree of scepticism – the world’s most infected nation – see: - www.worldometers.info/coronavirus  with over 38 million recorded virus cases of which over 7 million are still active.  Recorded deaths are over 640,000 of which over 1,000 were reported yesterday. There are many other nations in the throes of even more serious infection and death rates per head of population, so a consensus view may be difficult to reach.  More likely Jackson Hole may be somewhat inconclusive in reaching a consensus outcome and may thus end up being gold price neutral.

However the military withdrawals from Afghanistan and the ridiculously rapid takeover of political control by the Taliban may well lead to global destabilisation as the U.S. in particular loses influence and trust.  Doubtless the U.S.’s putative competitors on the world scene will be looking for ways of taking advantage which may well lead to more global instability and a run on gold as a resultant safe haven when the true impact sinks in – something it has a great track record for.

19 Aug 2021 | Categories: Gold, US, FOMC

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