It was a rather bland August for gold, with prices jumping 2.0% to $ 1,818 an ounce and physical gold ETFs posting a fourth straight week of modest 326,000 ounce outflows. Additionally, although inflation has risen significantly this year, it has not been enough to drive prices higher.
However, some experts see a dramatic rise in prices by the end of the year, an increase that depends on the reduction in asset purchases by the Federal Reserve.
As September approaches and with the employment data becoming available, investors are looking at how this will play out for the precious metal.
Gold sees the month of August
The Fed’s possible tapering kept gold prices in neutral territory in early August.
Towards the end of that month, according to an RBC Capital Markets report, CFTC’s net long gold positions rose from 21,000 to 221,000 contracts, while gold stocks rose 6.8%.
Additionally, gold equity ETFs posted a third straight week of modest outflows of $ 160 million.
“The most significant stock price changes for undercover names include Equinox Gold Corp (NYSEAMERICAN: EQX) (+ 12%), Sibanye Stillwater Ltd (JSE: SSW) (+ 12%) and Centerra Gold Inc (TSE: CG) (+ 11%). ”
With the September kick-off and a dollar plummeting, CNBC reported, “Spot gold was up 0.2% at $ 1,814.42 an ounce at 2:01 pm EDT (1801 GMT), after hitting its highest level since August 4 on Monday at $ 1,822.92. ”
In addition, US gold futures reached $ 1,818.1, a jump of 0.3%, while the dollar’s more than three week low “made gold cheaper for buyers holding other currencies ”.
What the experts say
Chris Lewis of FX Empire says the $ 1,825 to $ 1,830 area continues to be important. “We’ve pulled out of there a bit and it certainly looks like we are reluctant to take off for a bigger move.”
Regarding Friday’s release of non-farm payroll data, Lewis said, “We’re going to be very tight by the number of jobs here.”
Thus, forecasts for gold remain opaque but still imbued with a heartwarming sentiment, amid comments from US Federal Reserve Chairman Jerome Powell that have spurred interest in the precious metal.
At the Jackson Hole conference, he did not give much on a specific timeline for the reduction in asset purchases by the central bank.
Likewise, Loreta Mester, president of the Cleveland Central Bank, mentioned that recent inflation readings had not convinced her enough to start cutting asset purchases.
Future of the price of gold
In this perspective, Commerzbank analyst Daniel Briesemann says: “After turning his back on gold for several weeks, thus contributing significantly to the fall in prices in early August, speculative financial investors are now back. . “
Bart Melek, head of commodities strategies at TD Securities, says the Fed will “pull the trigger” but without a vigorous decline in monetary accommodation over the next few months, “so gold should end up doing well. “.
As the Fed waits for “the right data” to confirm whether the U.S. economy is strong and ready to go on its own again, the impact of the latest Chinese economic shutdowns due to COVID-19 is still being felt and will continue to be felt. to be felt. to weigh.
The decision of investors to buy the precious metal will be affected by how the demand is compromised by the economic situation.
For now, the long-term trend is still bullish as inflation expectations are still rising. This could reverse prices by 2021, and such expectations could prevail, not only because of the improving economy, but also because the Fed may continue to play its stimulus card as part of the recovery. economy.
Disclosure: No position in the companies mentioned.