FX foreign exchange analysis gold spot weekly stop "four consecutive declines"

Beijing, August 28th, last week (August 21st-25th week) international spot gold opened at $1889.07/ounce, the highest hit $1923.16/ounce, the lowest hit $1884.68/ounce, closed at $1914.59/ounce, up $25.6 or 1.36%, the weekly close Dayang, the end of the four-week losing streak.

Although Powell's latest speech suppressed gold's rally, the deterioration of PMI data in Europe and the United States deepened, risk sentiment rose sharply, and the decline in real yields still caused gold prices to rise sharply last week, ending the previous four-week losing streak.

Reports such as the upcoming monthly jobs data will be crucial in the coming week, and economic data will be key to predicting what the Fed and markets will do next at a time when Mr. Powell's speech "leaves the maximum policy options open" for the Fed.

Multiple factors have helped gold prices recover

Although Federal Reserve officials, including Powell, remain hawkish on further interest rate hikes and inflation, a series of factors including economic data and bond market movements last week still supported gold prices to stabilize and recover during the week.

One of the bulls came from the bond market. On Monday, the yield on 10-year Treasury inflation-protected securities (TIPS), which reflects the market's estimate of the real inflation-adjusted cost of capital, rose by about 6 basis points during the day, surpassing the 2% mark for the first time since 2009. This makes the trading strategy of buying TIPS against inflation risk once again recommended by institutions.

At the same time, S & P downgraded the ratings of several US banks last Tuesday (August 22), and Fitch placed the long- and short-term issuer default ratings and viability ratings of US savings banks on negative rating watch. Coupled with Moody's announcement earlier this month that it would downgrade the credit ratings of 10 small and medium-sized banks in the United States, and that it may downgrade the credit ratings of major banks including US Bank and State Street, the market has begun to re-examine the stability of the US banking industry in a high interest rate environment.

In addition, the latest data show that the PMI data of Europe and the United States deteriorated. Data released last week showed that the Markit manufacturing PMI in the United States recorded 47 in August, lower than the expected 49.3 and the previous value of 49; the preliminary value of the service PMI recorded 51, a new low in six months; the preliminary value of the service PMI in the euro zone in August recorded 48.3, a 30-month low, and fell below the line of prosperity and decline for the first time this year; the UK manufacturing PMI recorded 42.5 in August, a new low in 39 months.

Despite better-than-expected initial jobless claims from the U.S. Department of Labor, signalling that the U.S. labor market remains tight, gold prices rallied tenaciously during the week amid recession fears, unabated inflation risks, and a pressured banking outlook.

Powell's speech weighs on gold

However, the most attention of the market last week was still the Jackson Hole global central bank meeting held in the second half of the week. But Powell's "ambiguous" and "cautious" speech did not give a clear direction, and it also led to a "roller coaster" of US stocks, US dollars, US bond yields and gold on that day.

At the meeting, Federal Reserve Chairperson Jerome Powell said real interest rates were positive and well above most neutral expectations. The Fed will carefully decide whether to raise interest rates again, maintain a restrictive monetary policy stance until inflation continues to slow, and "the Fed is prepared to raise rates further if appropriate".

These remarks are largely in line with Powell's statements and signals this year: he is particularly focused on restoring price stability and, if necessary, the possibility of further tightening to bring inflation back to the 2% target remains.

But after Mr. Powell's speech, other Fed officials spoke in a mixed vein, with a hawkish majority but a lack of clear direction, in a sign of the Fed's widening divergence over the direction of interest rates.

Philadelphia Federal Reserve President Harker reiterated that he does not see the need for further interest rate hikes at this time, but stressed that the Federal Reserve must reduce inflation to 2% and needs to continue to apply pressure. It will not see a rate cut until next year at the earliest; data will determine the Federal Reserve's actions in September. Cleveland Federal Reserve President Meister said that the Federal Reserve must be patient with policy for now. Inflation is still too high. Excessive easing is worse than excessive tightening. The Federal Reserve will not cut interest rates in 2024. Chicago Federal Reserve President Goolsbee said that it is too early for the Federal Reserve to declare "mission accomplished" and that inflation will fall without a recession.

Philadelphia Fed President Harker believes that the Federal Reserve will keep interest rates unchanged this year; if inflation falls, it may cut rates next year. Boston Fed President Collins said that interest rates may be very close to the peak, but the possibility of further interest rate hikes should not be ruled out.

Overall, the comments from Fed officials meant that the door remained open for the Fed to continue raising interest rates, but the need for further increases eased, while Mr. Powell dismissed expectations that a rate cut was imminent and that a decision to raise or keep rates on hold would be based on the overall picture of upcoming economic data. That left Mr. Powell "with maximum policy options" to adjust policy quickly as economic data became available in the coming months.

Judging from the market reaction, after Powell's speech, the interest rate swaps market remained stable. Traders believe that the probability of the Federal Reserve raising interest rates by 25 basis points in September is about 20%, and the probability of still pricing in a 25 basis point hike in November is 60%. In addition, the Federal Reserve interest rate swaps show that the Federal Reserve will cut interest rates by 25 basis points for the first time in July next year.

FXTForeign exchange indicates that bullish sentiment has improved slightly, but it remains to be seen if it continues to rise.

Sentiment in the gold market improved slightly last week as gold prices completed another test of support at the $1,900/oz mark.

The latest Kitco Gold Weekly survey showed that about 69 per cent of respondents expected gold prices to rise in the week to September 1, significantly higher than the share of bulls in the previous week. However, institutions remain cautious about the latest week of gold prices, with Wall Street analysts both bullish and bearish at 42 per cent.

In addition, investment demand for gold continued to fall. According to the position data of the world's largest gold ETF - SPDR GOLD TRUST, the ETF's position fell to a minimum of 884.04 tons last week, and the cumulative reduction of 3.46 tons in the week. This year, the net reduction of positions reached 32.09 tons.

In the futures market, the US Commodity Futures Trading Commission (CFTC) report shows that as of the week of August 22, COMEX gold futures speculative net long positions decreased by 20,845 lots to 25,695 lots, a sharp decrease for the fifth consecutive week. However, the Chicago Mercantile Exchange (CME) gold unpositioned squaring contracts increased for the second consecutive week, and the total number of unpositioned squaring contracts increased to 434,769 hands.

Technically, the price of gold rebounded from the $1,884/oz line, blocked by 38.2% of the $1,923.8/oz line. The above resistance is $1,936/oz and $1,948/oz, respectively. If the price of gold breaks through $1,924/oz, it is expected to hit the pressure area of $1,930- $1,950/oz. Overall, the price of gold needs to recover above $1,950/oz to completely reverse the decline. On the other hand, if the price of gold is weak and loses the $1,900/oz mark, there is a risk of re-testing the support of the 1884-1872/oz area on the downside.

The domestic Shanghai gold main AU2310 contract was blocked by 461-463 yuan/gram regional pressure fell, and the lower support was concerned about 453-455 yuan/gram. If it broke, there was a risk of testing the 445-450 yuan/gram area. The upper 461-463 yuan/gram has become an important pressure in the near future, and it is expected to hit the 463-466 yuan/gram area again.

The pressure above the domestic Shanghai silver main AG2310 contract is 5750-6000 yuan/kg, and the breakthrough is expected to hit the 6100-6200 yuan/kg area. Support is located in the 5700-5800 yuan/kg area, and the more critical support is located at 5600 yuan/kg. If it falls below this level, you need to pay attention to the deep retracement.

In the new week, US economic data will dominate the market, and the US PCE data, non-farm payrolls report and other blockbuster data will be released one after another. As the Federal Reserve's current round of interest rate hike cycle draws to a close and Powell does not give clear guidance, the state of the consumer market and labor market will play an important role in the Federal Reserve's decision-making.