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© Reuters.
By Barani Krishnan
Investing.com – For those who know Jerome well, it wouldn’t surprise them to delay monetary tightening again this week.
Anyone betting otherwise, believing the Fed chairman will show more inflation problems, may have paid a heavy price on Friday with lower and higher Treasury yields.
The Federal Reserve’s long-awaited Event of the Year – arguably America’s economic agenda – ended in disappointment as Powell demonstrated in his Jackson Hole speech that job creation is what account for the central bank, not the price pressures.
Since there is no ambiguity about the Fed’s priority task, attention is shifting – at least for readers of this column – to what that means for commodities, in particular.
Well, gold hit the $ 1800 level sharply for the first time in three weeks – I say “firmly” because the yellow metal has been around $ 1800 since Monday when it wasn’t there at the same time. time – but that’s only part of the story.
To really determine the direction of gold in the short term, we have to wait until August which is due next Friday, or September 3rd.
Why? Because that’s exactly what the Fed will be watching if it ever announces that it is cutting $ 120 billion in bonds and mortgage-backed securities that it bought in the past 18 months to protect the market. economics of the effects of Covid.
Powell certainly focused on employment in his Jackson Hole speech.
More than a year after the start of the COVID-19 crisis, restoring job growth remains one of the biggest challenges for Fed policymakers. The United States lost more than 21 million between March and April 2020, at the height of business closures imposed by the Corona virus, and nearly 7 million jobs have yet to be filled, officials said .
“Today, as the Great Labor Market Recession continues and the pandemic continues, such a mistake can cause special damage,” said Powell.
“The timing and pace of the next reduction in asset purchases will not be intended to provide a direct signal as to the timing of rate hikes, on which we have formulated a different and considerably stricter test,” the president added. from the Fed. He also stressed the need to avoid “moving at the wrong time” amid the continuing new uncertainty of the delta mutator.
If the code is decoded, it means that the Fed will maintain close attention in the labor market for signals regarding declining asset purchases.
More importantly, “weekly and monthly jobs data will determine when rates rise,” said Philip Strebel, precious metals strategist at Blueline Futures in Chicago.
As mentioned earlier, those who have bet correctly on Powell in recent months will know that the greater the improvement in employment in the United States, the greater the chances of a more rapid gradual decline in assets. As a result, the outlook will be worse for stock and gold prices. This is one of the paradoxes of the contemporary American economy, where investing in Wall Street is sometimes nothing more than a game of chimpanzees pulling darts and triggers.
Strebel also agrees: “As an investor in gold and silver, you want to see a prolonged labor market recovery, which leads to a longer path to a recent price rally.”
July’s jobs report was the best in a year, adding 943,000 jobs after 1.76 million in July 2020. More importantly, it pushed the monthly unemployment rate – the holy grail of the decline – to 5 , 4% against 5.9% in June. The Federal Reserve’s definition of “full employment” is 4%. No one thinks we’ll get it, with the 4.9% to 4.5% that many consider good.
Right now, employment growth in August is expected to be 728,000. If for some reason the number turns out to be as good as in July, it could narrow the unemployment gap by one. another half percent, bringing us into the 4.9% region. يمكن أن يبدأ ذلك العد التنازلي لبنك الاحتياطي الفيدرالي بشكل تدريجي, حيث من المحتمل أن تكون الفترة من سبتمبر إلى أكتوبر بمثابة الإعلان الأول قبل ما يمكن أن يتبعه تخفيض شهري قدره 10 مليارات دولار من شأنه أن يخفض التحفيز إلى الصفر في غضون عام, إذا سارت الأمور good. Rarely does anything go well in our world.
“If you don’t have the ability to add to your current position or if you think gold is undervalued, you will need the number of jobs to exceed expectations,” Strebel wrote in a published forecast. Friday.
Conversely, the disappointing number of jobs will prolong the rally in gold “until the next major three-star resistance at $ 1,835-1840 an ounce,” Strebel wrote.
The last time gold traded above $ 1,830 was in mid-July. And if it hits $ 1,850, it could easily reach $ 1,900, which could reach the record high of $ 2,000 set a year ago – if all goes well, which is again a rarity in our world. .
Gold market and price report
Gold hit a 3-week high on Friday, posting its best weekly gain since May, after Powell failed to give a clear timeline to cut US stimulus spending at the central bank’s long-awaited monetary policy seminar at Jackson Hole.
Dollar and Treasury yields fell as risky assets from equities to commodities, including oil, soared. Although gold is classified as a safe haven, it has also risen, due to its sensitivity to inflation, which generally determines the prices of the yellow metal.
First-month gold futures on the New York Comex settled at $ 24.30, or 1.4%, at $ 1,819.50 an ounce, after a three-week high of 1 $ 821.55. During the week, it is up about 2%, its highest level since the week in mid-May.
The Fed has bought at least $ 80 billion in mortgage-backed securities from the agency and $ 40 billion every month since March 2020 to shield the U.S. economy from the effects of measures related to the coronavirus pandemic. The central bank also kept US interest rates at an all-time high between zero and 0.25%.
The question of when the Fed should ease its stimulus measures and raise interest rates has been hotly debated in recent months as the economic recovery conflicts with the re-emergence of the mutated delta coronavirus.
The federal stimulus package is accused of exacerbating price pressures in the United States, where economic growth for the second quarter of 2021 was estimated at 6.6% on Thursday, more than the 3.5% decline observed over the whole of 2020. As the central bank itself falls by 6.5%, economic growth for the whole of 2021.
The Fed’s preferred measure of inflation – the core PCE index (), which excludes volatile food and energy prices – rose 3.6% in the year through July, its highest level since 1991. The PCE index including energy and food increased by 4.2% per year. .
The Fed’s inflation target is 2% per year.
In addition to asset purchases from the Fed, the Biden administration has exceeded $ 1.2 trillion in COVID-19-related spending since the president took office in January. This week, Democratic lawmakers allied with Biden also presented a $ 3.5 trillion additional spending plan to advance his economic agenda.
Oil Price Market and Price Report
Prices ended the penultimate week of August with double-digit gains that surpassed the crash of a week ago, aided by hurricane watch and comments from Fed Chairman Jerome Powell, on when to end central bank stimulus spending.
West Texas Intermediate crude traded in New York, the main benchmark for U.S. oil, was $ 68.74 a barrel, up $ 1.32, or 2%, on the day. During the week, WTI rose 10.3%, surpassing last week’s 8.9% drop amid concerns over the resurgence of the Covid virus delta mutator.
The London trader, the world’s oil benchmark, was $ 72.70, up $ 1.63, or 2.3%. During the week, Brent crude is up 11.5% after falling 7.7% last week.
As for WTI, it made the biggest weekly gain since September 2020, while Brent crude registered the biggest weekly gain since May 2020.
Crude oil prices rose as U.S. oil and gas companies rushed to complete evacuations from offshore platforms in the Gulf of Mexico as Tropical Storm Ida moved toward the region before making landfall as a hurricane Category 3. The Gulf includes oil fields that provide about 17% of US oil production. There is also over 45% of the total US refining capacity.
“The risk of an intensification of the storm before it makes landfall could support prices until the end of the week,” said Craig Erlam, analyst at ONDA in New York. “Many companies have moved workers away from offshore facilities in anticipation of the storm.”
Oil has also risen as Federal Reserve Chairman Powell said the U.S. economy is in good shape but remains exposed to the risks posed by the coronavirus pandemic.
The agenda for the future energy market
Monday August 30
Cushing of Genscape stock data
Tuesday August 31
The American Petroleum Institute weekly report.
Wednesday 1 September
The US Energy Information Administration’s weekly report on.
The US Energy Information Administration’s weekly report on.
The US Energy Information Administration’s weekly distillate inventory report.
Thursday, September 2
U.S. Energy Information Administration Assessment Report on Storage
Friday, September 3
Baker Hughes (NYSE 🙂 weekly survey of US oil rigs
Disclaimer: Barani Krishnan does not trade the commodities and stock markets he writes about.
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