Gold Price Forecast: Bull Market Correction Underway, Jackson Hole Symposium eyed – FXStreet
- Gold is about to post its second straight weekly loss.
- The yellow metal is witnessing a bull market correction.
- Next big move hinges on next week’s Jackson Hole Symposium.
Gold is down but not out and the broader bull market isn’t over yet, according to analysts. At press time, the precious metal is trading near $1,935 per ounce, representing a 0.6% weekly loss, but is still up nearly 28% on a year-to-date basis. Prices fell by over 4% last week, having peaked at $2,075 on Aug. 7.
“Gold fell this week on the strengthening dollar post FOMC disappointment,” Giles Coghlan, Chief Currency Analyst at HYCM, told FXStreet.
The minutes from the Federal Reserve’s July meeting released Wednesday dismissed “yield curve control” as one of the measures to keep borrowing costs low.
The greenback fell to 27-month lows against the basket of major currencies, pushing gold above $2,000 ahead of the minutes, as investors believed the Fed would begin preparing markets for yield curve control by dropping hints via minutes.
Hence, the dollar picked up a bid and gold fell by over 3% after the minutes remained silent on the no-limit stimulus policy of yield curve control.
However, despite gold’s recent dour performance, the bias remains bullish, as the trendline trending north from March lows is still intact, according to Coghlan.
Daily chart
“Stay above and bulls remain in control. A key test next week will be the $1,890 region. If price can stay above that area next week it should provide near term support for gold,” Coghlan mentioned in his weekly forecast note.
Dukascopy Bank also blamed Fed minutes for gold’s poor performance this week and took note of the rising channel on gold’s technical chart in its weekly forecast note. The bank remains bullish on the yellow metal. “The metal remains in a channel up pattern,” the bank noted.
Focus on the Jackson Hole Symposium
“Federal Reserve Chairman Jerome Powell will deliver a speech at next week’s annual Jackson Hole symposium on the central bank’s long-awaited monetary policy framework review, which has focused on a new inflation strategy,” as noted by Bloomberg.
Gold will likely resume the uptrend and revisit the record high of $2,075 if Powell signals greater tolerance for above-target inflation, fueling a deeper drop in real or inflation-adjusted bond yields and fresh sell-off in the greenback. The US 10-year real yield recently fell to record lows below -1% and the 10-year breakeven inflation rate – a bond market’s measure of inflation expectations – reached six-month highs. The Fed has an inflation target of 2%, which has consistently remained elusive.
However, if Powell does not provide clear guidance, the dollar’s oversold bounce will likely gather steam. In that case, gold may find acceptance below the all-important five-month-long bull market trendline. At press time, that trendline support is located near $1,890, under which the focus would shift to the Aug. 12 low of $1,863.
A bullish-to-bearish trend change would be confirmed if sellers succeed in establishing a foothold under $1,863. That would establish a lower high and lower lows setup on the daily chart. Some analysts believe deeper declines, if any, would be short-lived, as debt concerns will eventually force the Fed to ramp up its bond purchases. Put simply, the liquidity tap isn’t going to run dry anytime soon. “Gold’s price could hit $7,000, but it will take time,” Charlie Morris, Chief Investment Officer at ByteTree Asset Management, told FXStreet in a Whatsapp chat.
Symposium will be held next Thursday and Friday. Investors are likely to remain on sidelines ahead of the event, keeping markets choppy. In other words, data scheduled for release in the first half of the week may fail to elicit strong reactions from markets.
