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(Kitco News) – One of the biggest risks to the price of gold right now is the "extremely broad positioning of the metal," said TD Securities. But could Jackson Hole's speech, Jerome Powell, chairman of the Federal Reserve, worsen things and provoke a selloff?
The yellow metal manages to trade just north of the new key psychological level of $ 1,500 an ounce this week as risk sentiment recovers in the market.
Whether gold wins or not rallying after Powell's speech at Jackson Hole on Friday will be "the moment of truth for gold-related bugs," writes TD Securities strategists Monday.
"Many market players, including ourselves, have highlighted the extremely broad positioning as a risk factor for this recovery," said the strategists. The question now is whether a gold sale is expected this month, they added.
"Global market participants embarked on a spectacular search for safe assets, which saw the negative-yielding debt pile widen north of 16T, reversing the US (2-10) curve, leading to a increased volatility of equities and generated the US market yield. 30-year bonds hit their all-time low. In this context, can we expect a reversal of global returns that could result in a sharp correction of gold? ", Says the report.
The market is currently expecting the Fed to cut rates by 60 basis points this year. That's why "Powell could be stuck in a hole (Jackson's)" this Friday, said TD Securities.
"Our rate strategists note that the Committee is divided on interest rate expectations and that the impact of weak global growth and trade uncertainty on the United States remains unclear. In addition, even if the yield curve has reversed, the S & P is only a few percentage points of the highs and CDX IG has increased by only 10 bps this month, "wrote the strategists. "The financial conditions have not tightened significantly – which could prompt the Fed to stay the course and, ultimately, could destabilize the markets this week."
Still, this short-term disappointment could save the gold bugs in the long run, the bank added.
"Given the excessive expectations for easing and extremely long-term positioning, this would also tighten the financial conditions – which could force the Fed to create the conditions for further relaxation at the next meeting. And, if the difficult financial conditions or the difficulties of global growth lead to the worst macroeconomic data in the US, we believe that the volatility of US equities will soon increase, leading to a resumption of portfolio flows towards safe haven assets, such as gold, "wrote the strategists of the bank.
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