(Kitco commentary) - After continued U.S. economic strength announced this week, the likelihood of another Fed rate hike by November moving closer to 50% has taken Gold Futures closer to key technical support at $1900.
After continued U.S. economic strength announced this week, the likelihood of another Fed rate hike by November moving closer to 50% has taken Gold Futures closer to key technical support at $1900. Traders assign a 45% chance of a November rate hike, after an expected pause in September. One week ago, those odds of a November hike were less than 30%.
If USD momentum can stay overbought, while price breaks above the 200-dma and this down trendline becomes support, a move to 105.5 becomes the probability with Gold Futures possibly moving towards longer-term support at $1850. The main risk to be aware of next week is a continuation of the ‘higher rates for longer’ interest rate narrative from Federal Reserve Chairman Jerome Powell speaking from the FOMC Jackson Hole Symposium on Friday morning. Each year, FOMC officials gather at their summer retreat in Jackson Hole, Wyoming for a symposium in late August to exchange views on monetary policy and economic trends.
Inflation has moderated, although much of the improvement has been attributed to declines in energy prices. Core inflation is still burning hot and since the labor market remains extremely tight, there are concerns inflation might not return to its 2% target anytime soon. Although this is what we need to see to attract generalist investors back into the mining space as a safe-haven, we cannot rule out further risk to the downside in the form of a panic selloff in equities during "crash season." A Fall market crash could be precipitated by a worsening banking crisis as a result of persistent relatively high interest rates. If so, the move could set up a test of the September 2022 lows in both GDX & GDXJ.
We will probably experience a bit more pain in gold stocks during the last few weeks of summer doldrums, but are likely close to a significant bottom in the mining space. Fed Chairman Jerome Powell's Jackson Hole speech next Friday could either accelerate the decline for a near-term upside reversal, or set the final low.
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