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After being consolidated for two weeks on a volume and volatility below average, gold futures ended up higher last week and could face a six-year high after the falling US Treasury yields and falling stocks due to increased fears of a recession in the United States. To a lesser extent, Fed Chairman Jerome Powell fueled part of the rally with accommodating comments. However, most traders will agree that it is the action of President Trump that has triggered the biggest reaction in the gold market.
Last week, the December Comex gold futures were $ 1537.60, up $ 14.00 or + 0.92%.
Powell gave an early bullish tone
The chairman of the Federal Reserve Friday told global investors that the Fed was ready to take action to support the recovery more than a decade. Powell said the Fed was ready to do all that was necessary to support the record economic expansion recorded in the United States, while asserting that international developments weighed most heavily on the Fed's decisions.
"Based on our assessment of the implications of these developments, we will act appropriately to support this expansion," Powell said at the Central Bank Symposium in Jackson Hole, Wyoming.
Powell also acknowledged that Fed policymakers have a limited toolbox to respond to the ongoing trade war with China, stressing that monetary policy is a "powerful" but not a universal tool.
Nevertheless, the Fed chief has not made it clear whether he is considering responding to market demand, which predicts a 25 basis point rate cut in September and up to four more in the next 12 months. to continue to expand and defend the United States against a recession.
Powell also said that the uncertainty caused by Trump's tariffs on China and other trading partners was the main risk monitored by the Fed. He also acknowledged that since the Fed's first rate cut in 10 years on July 31, market conditions "have been turbulent, starting with the announcement of new tariffs on imports from China", did he declare.
Trump's comments soar
After China fought back with new tariffs and Fed Chairman Jerome Powell calmed the markets by apparently opening the door to further rate cuts by saying the central bank was ready to do whatever it took to support The US record-breaking expansion on Friday, President Trump enlightened the Twitterverse with a series of scathing tweets criticizing the Fed, Jerome Powell and China. But this time he did not stop there, he took action that caused a sharp break in the stock market, while stimulating demand for safe haven assets.
Trump's series of tweets undermined investor confidence in the economy, leading to a sharp drop in major indices, with a fourth consecutive weekly loss. Dow's blue chip yielded around 1% this week while the S & P 500 benchmark lost 1.4%. The NASDAQ composite index, based on technology, lost 1.8%.
The fall in stock markets triggered a wave of activity in safe haven markets. US Treasury yields have fallen. In addition, the yield curve reversed briefly Friday, but was virtually unchanged throughout the day. Gold jumped 2% thanks to gains attributed to Powell's dovish speech. The Japanese yen hit a record high of one week.
Dollar weakness leads to increased demand for gold denominated in dollars
The US dollar plunged against a basket of currencies last week after a three-week high after President Donald Trump ordered US companies to start looking for an alternative to China. The decision was made in response to Beijing's imposition of more tariffs on US products, further escalating tensions between the two economic powers in a protracted trade dispute.
A weaker dollar increases the demand for dollar-denominated assets such as gold.
Weekly forecasts
The main US economic reports for the week are durable goods, Conference Board consumer confidence, preliminary GDP and personal spending.
Preliminary GDP is expected to be 2.0%, down from the first estimate of 2.1%. In my opinion, this is the main report because it will allow investors to know how close the economy has been to the recession. Remember that the classic definition of a recession calls for two consecutive quarters of negative economic activity.
Friday, after the first rains of Trump, the president announced that Washington would impose an additional duty of 5% on Chinese products. Trump said the US would increase tariffs on Chinese imports by $ 250 billion from 25 percent to 25 percent as of Oct. 1.th anniversary of the founding of the Communist People's Republic of China.
At the same time, Trump announced an increase in tariffs on the remaining $ 300 billion of Chinese goods, from 10% to 15%. The United States will begin imposing tariffs on certain products as of September 1, but tariffs on about half of these products have been deferred until December 15.
Given the retaliatory tariffs imposed by China on Trump's tariffs on August 1 and the reaction of the gold market, we must expect China to strike the United States with a countermeasure that could raise gold prices even higher.
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