Gold climbs above $ 1,800 on weaker dollar, Fed sentiment to reverse cut schedule

A combination of factors caused gold to rise sharply today, surpassing the key psychological level of $ 1,800 an ounce. The weak dollar was a strong component contributing about 1/3 of today’s strong gains. A disappointing index of manufacturing purchasing managers in the United States has amplified concern that the Delta variant of Covid-19 has slowed the economic recovery in the United States. And that these concerns about the increased rate of infection from the variant could dramatically cause the Federal Reserve to step back on its schedule to start cutting its monthly asset purchases of $ 120 billion in U.S. Treasuries and MBS (mortgage backed securities).

At 5:15 p.m. EST based on gold futures, the most active December 2021 Comex contract is trading an additional $ 23.60, a net increase of 1.33%, and is currently pegged. at $ 1,807.80. Meanwhile, silver futures are trading up 2.31% or $ 0.533, with the most active September 2021 Comex contract currently pegged at $ 23.64. The US dollar index lost 0.518 points (- 0.55%) in trading today and is currently pegged at 92.99. After hitting a high for the year last week, the dollar index weakened in foreign trade last night.

That brings us to the key upcoming event of the week, which will be the Virtual Economic Symposium published by the Federal Reserve Bank of Kansas City. Typically held in Jackson Hole, Wyoming, the symposium will be virtual this year due to the increase in cases of the Delta variant in the United States. Until recently, members of the Federal Reserve expressed their belief that it was time to start cutting back on their monthly asset purchases. The more aggressive or hawkish members of the Fed suggest they will start declining at the end of this year, and the more conservative or conciliatory members of the Fed are looking at the first or second quarter of 2022 to start declining.

The recent hawkish behavior of Federal Reserve members reached a climax just after an extremely strong employment report from the US Department of Labor, which indicated that an additional 943,000 new jobs were created in July. However, the recent invasion of the delta variant of Covid-19 in the United States has caused some members of the Fed to rethink their position on the timing and extent of the reduction.

Rob Kaplan, chairman of the Federal Reserve Bank of Dallas, said last week he could “rethink his call for the Fed to start cutting its $ 100 billion a month and bond purchases if it looks like the spread of the Delta coronavirus variant slows economic growth. ”The same goes for Neel Kashkari, chairman of the Minneapolis Federal Reserve. On Thursday, August 19, he said the “COVID-19 delta variant matters a lot” in the Federal Reserve’s upcoming debate on when to start slowing down the $ 120 billion in monthly bond purchases.

Since the start of the pandemic in 2020, the Federal Reserve has strongly supported the recovery of the economy in the United States with an unprecedented amount of capital allocated each month to provide liquidity through their asset purchases. President Powell has said on numerous occasions that their timeline for rate cuts and normalization will systematically depend on the data.

Recently, this data suggested that the Delta variant could stifle or slow economic growth in the United States. And it is these factors that make President Powell’s speech scheduled for Friday, August 27 so important. The question investors are looking for an answer is whether or not the Federal Reserve thinks they should reconsider their current cut schedule, as expressed in the August 18 minutes of the last FOMC meeting.

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Wishing you, as always, good exchanges and good health.