Gold futures are surging on Thursday as Treasury yields dipped and the U.S. Dollar Index plunged in reaction to the somewhat dovish or less-hawkish tone exhibited in yesterday’s Federal Reserve monetary policy statement and Fed Chair Powell’s post-statement press conference.
At 12:37 GMT, December Comex gold futures are trading $1828.70, up $24.10 or +1.34%.
Briefly, gold prices have spiked to a two-week high after Powell reassured investors that a rate hike is not in the cards anytime soon, sending the dollar to multi-week lows.
Is this the resumption of the rally that ended a year-ago next week? No. This is likely only a position-adjustment because the Fed failed to deliver a more-hawkish message on tapering. But enjoy the ride since the next Federal Reserve meeting isn’t until September 21-22.
However, by then it will have two more Non-Farm Payrolls reports and two more consumer inflation reports under their belt. If the labor market shows strength and inflation remains steady then look for the Fed to announce its tapering plan. This news will put a cap on gold prices.
Gold could get a further boost if stocks sell off sharply. Despite bullish earnings reports and the mixed message from the Fed, the stock market is looking a little tired at current price levels. If the major players decide to pack it in for summer vacation in August with a plan to return after the U.S. Labor Day holiday the first week of September or later, we could see heighten volatility, which would send investors into gold.
The current upside target for gold is $1839.90 to $1859.70. Trader reaction to this zone will then determine the longer-term direction of the market.
US Economic News
Helping to boost gold prices is this morning’s disappointing economic data. Signs of a weakening economy are bullish for gold because if it continues into September, it could encourage the Fed from starting the tightening process.
The U.S. second-quarter gross domestic product accelerated 6.5% on an annualized basis, considerably less than the 8.4% Dow Jones estimate.
Meanwhile, a separate data point showed that 400,000 people filed initial claims for unemployment benefits for the week ended July 24. That level is nearly double the pre-pandemic norm and above a Dow Jones estimate of 385,000.
The upside momentum is strong enough to drive December Comex gold futures into $1839.90 to $1859.70. What it does there will determine whether the rally continues into at least $1900.00 or pulls back to $1795.00.
It will get there faster if the stock market weakens.