After growing stronger towards the end of last week, the U.S. dollar has begun to retreat once again, creating fresh new space for the gold bulls to assert their control. The decline in the dollar index comes as markets await Friday’s scheduled Federal Reserve symposium at Jackson Hole.
The symposium is set to debate the economic outlook, with the official theme given as ‘Reassessing Constraints on the Economy and Policy’. Experts are split on what the outcome will be, with some suggesting that the Feds may ease up a little on rate hikes, while others predict either a 50 or 75-point increase for September.
Capital Economics senior economist Andrew Hunter said he expects policymakers to home in on the status of the global supply chain. “As pressure on global supply chains eases, that implies that a reduction in inflation could now be achieved with a relatively modest easing in demand,” he noted. “It is a key basis for our view that a recession can still be avoided over the coming quarters. The Fed is clearly hoping for a similar outcome, and officials may try to bolster that case next week.”
Lukman Otunuga, a senior research analyst at FXTM believes the meeting could go either way – something which is hemming in the dollar ahead of the symposium. He said, “There is a strong sense of unease across financial markets as investors grapple with inflation concerns, jitters over tightening U.S. monetary policy, and recession fears… What Powell reveals during the speech or chooses to hold back could set the tone for global markets in the weeks ahead.”
Senior market analyst Edward Moya has a different take. He thinks Wall Street will face a turbulent period, which could be good news for gold prices. “After this week, Wall Street should not be surprised if Fed fund futures start pricing in rate hikes for next year. This could be the week many return from vacation and double down on their bear market rally calls.”
Gold prices are already starting to react to the uncertainty. A 0.90% gain in trading yesterday (Tuesday) took prices to £1,480 ($1,753), with more to come.
