Why gold prices need to consolidate
Head of Commodity Strategy
Summary: The recent, steep rally in gold prices has brought the yellow metal right up to a region of hard resistance. Is the current combination of trade war and slowing macro enough to push gold higher?
This was the change that finally saw gold break higher and the question now is whether the renewed momentum is enough to carry gold higher. The is particularly relevant considering the Federal Open Market Committee led by chair Powell, at least for now, is not signaling a willingness to adopt the recent aggressive change in market expectations.
Yesterday in a speech at the Fed’s Chicago conference, Powell said the Fed was “closely monitoring” impact of trade developments and that it will “act as appropriate”.
On that basis and in order to maintain the current upside momentum in gold, market developments from here need to support the 1% gap between the current Fed Funds rate and the expected rate in 12 months’ time shown below. In the short term, this highlights the correction risk should economic data such as Friday’s US job report surprise to the strong side.
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