Market Watch: Gold Prices Rise Amid Dollar Decline Ahead of Jackson Hole Meeting

Despite recent headwinds, gold prices saw significant gains on Tuesday, pushing the precious metal well above critical $1,900-per-ounce lines as traders await the Jackson Hole Symposium scheduled for later this week. While the U.S. dollar and yields may have seen shocking momentum last week, the gains were short-lived. Both assets are falling back yet again, allowing gold to rise ahead of the weakening currency.

Spot gold increased on Tuesday by 0.4% to $1,901.80 per ounce, while gold futures saw the most significant gains. Gold futures rose to $1,930.90 per ounce compared to $1,950.20 per ounce just last Thursday.

Later this week, Christine Lagarde, the president of the European Central Bank, and Jerome Powell, a U.S. Federal Reserve Chair, will meet in Jackson Hole to discuss interest rate outlooks ahead of the September FOMC decision. This week’s meeting will offer critical insights regarding gold’s short-term outlook.

Gold prices have an inverse relationship with interest rates as high rates increase the opportunity costs of investing in non-yielding assets like gold. If the Symposium this week concludes with Powell and Lagarde revealing dovish opinions regarding their respective committees’ future plans, gold may see further gains in the near future. The precious metal typically gains more investor demand when interest rates drop.

After July’s FOMC meeting minutes came out, the marketplace began feeling fearful over what may occur in September. Before the release of the minutes, most assumed the Federal Reserve was loosening its hawkish stance. The document, however, displayed that “most” policymakers still firmly held their stance of achieving the 2% inflation rate, which could mean further interest rate hikes.

“All members affirmed that they are strongly committed to returning inflation to their 2 percent objective” but would “be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the minutes stated.

July’s meeting minutes created additional headwinds for gold prices. If this week’s Symposium reveals updated insights on how the Federal Reserve plans on attacking inflation levels, gold may regain its footing.

While the committee may have shown hawkish opinions in July, such statements came before the latest CPI data revealing cooling inflation levels. By now, Powell may have a slightly differing stance.

The U.S. dollar is currently down 0.1% against its currency rivals. When the dollar declines, gold becomes cheaper for buyers using other currencies.

“At the moment, I think it’s nothing more than a little bit of dollar correction and bargain hunting at these levels that is helping gold prices,” Ross Norman, an independent analyst, explained when discussing gold’s latest gain. Numerous investors are choosing to buy in while prices for gold are low, which in turn supports the asset’s momentum.

“We are not expected to see significant moves in gold leading up to Jackson Hole because people will be waiting on the sidelines,” Norman added.

Essentially, gold likely will not see much movement until after this week’s meeting. Traders want to hear policymakers’ stance on interest rates before making any critical portfolio moves. Hawkish statements may keep gold where it is, while dovish words could move the precious metal up.

At the same time that the U.S. dollar dropped, U.S. Treasury yields also retreated for the first time after hitting a 16-year high. This dip brought prices down from the peak level that hadn’t been achieved since 2007.

“But the elephant in the room continues to be U.S. Treasury yields, which are at a 16-year high,” Norman continued.

Yields may have hit the 16-year high point, but the asset is declining now, signifying that a peak has occurred. With yields falling, gold can become more attractive.

The 2023 Economic Policy Symposium, also known as “Structural Shifts in the Global Economy,” will take place from August 24 to 26. This year’s event marks the 46th annual Symposium. Participants will discuss numerous economic issues and policies pertaining to domestic and global financial flows and trade.

As we await the meeting, traders can assess U.S. dollar and yield movement to predict gold performance rates. How the meeting plays out will likely impact gold’s short-term performance significantly. Moving forward, investors can use the meeting’s outcome as a key tool to assess what may occur during September’s Federal Reserve gathering.

The odds of a rate hike in September still sit below 10%. The likelihood may change after this week’s meeting. As always, investors should consult their financial advisors before making any portfolio moves.

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