News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Bullish
GBP/USD
Mixed
USD/JPY
Bullish
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 87.77%, while traders in France 40 are at opposite extremes with 69.59%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/ATuT8Qs6wU
  • Commodities Update: As of 10:00, these are your best and worst performers based on the London trading schedule: Silver: 1.10% Oil - US Crude: 0.77% Gold: 0.10% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/KbRbN5AOsk
  • Knowing how to accurately value a stock enables traders to identify and take advantage of opportunities in the stock market. Find out the difference between a stock's market and intrinsic value, and the importance of the two here: https://t.co/QszmdZFxlk https://t.co/wOM86j8WF2
  • Forex Update: As of 10:00, these are your best and worst performers based on the London trading schedule: 🇨🇭CHF: 0.61% 🇳🇿NZD: 0.59% 🇪🇺EUR: 0.49% 🇦🇺AUD: 0.37% 🇨🇦CAD: 0.25% 🇯🇵JPY: 0.22% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/gq10tc4FsL
  • 🇮🇱 GDP Growth Rate QoQ 1st Est (Q1) Actual: -1.7% Previous: 1.6% https://www.dailyfx.com/economic-calendar#2021-05-18
  • Indices Update: As of 10:00, these are your best and worst performers based on the London trading schedule: US 500: 0.27% FTSE 100: 0.20% Germany 30: 0.19% France 40: 0.17% Wall Street: 0.14% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/UEpwILW93G
  • Heads Up:🇮🇱 GDP Growth Rate QoQ 1st Est (Q1) due at 10:00 GMT (15min) Previous: 1.6% https://www.dailyfx.com/economic-calendar#2021-05-18
  • Risk management is one of the most important aspects of successful trading, but is often overlooked. What are some basic principles or risk management? Find out from @PaulRobinsonFX here: https://t.co/IsnpfJhp91 https://t.co/trHmVeFRyd
  • US Dollar basket at a three-month low. #usdollar #usd @DailyFX https://t.co/kCGWgw4lVp
  • 💶 Balance of Trade (MAR) Actual: €15.8B Previous: €17.7B https://www.dailyfx.com/economic-calendar#2021-05-18
Gold Prices May Rise as Federal Reserve Adopts Average Inflation Targeting

Gold Prices May Rise as Federal Reserve Adopts Average Inflation Targeting

Daniel Moss, Analyst
xauusd price chart

Chart Created with TradingView

Gold, XAU/USD, Federal Reserve, Average Inflation Targeting, Bond Yields – Talking Points:

  • The Federal Reserve’s adoption of average inflation targeting may underpin precious metal prices
  • Rising inflation expectations driving gold prices to record highs

Gold Fundamental Forecast: Bullish

Record low interest rates, accommodative monetary policy and extraordinary fiscal stimulus have buoyed precious metal prices and seemingly created the perfect environment for non-yielding assets to outperform.

This fundamental environment nurturing gold’s surge to fresh record highs is showing little signs of abating, as Federal Reserve Chairman Jerome Powell unveiled the central bank’s updated monetary policy strategy “that will seek to achieve inflation that averages 2 percent over time”.

Speaking at the annual Jackson Hole economic symposium, Powell flagged the “persistent undershoot of inflation from our 2 percent longer-run objective” as a cause for concern and stressed that “inflation that is persistently too low can pose serious risks to the economy [and] lead to an unwelcome fall in longer-term inflation expectations”.

With “well-anchored inflation expectations critical for giving the Fed the latitude to support employment when necessary” the central bank opted to introduce “a flexible form of average inflation targeting”.

Spot gold vs inflation

Data Source – Bloomberg

Average inflation targeting essentially allows the Federal Open Market Committee (FOMC) to extend accommodative monetary policy measures following periods of below-target price increases to “achieve inflation moderately above 2 percent for some time”.

Given the Fed’s preferred measure of price growth has consistently undershot the mandated target since its implementation 8 years ago and current 5-year inflation expectations sit at just under 1.8%, record low interest rates appear here to stay for the foreseeable future.

Although the Fed’s intolerance to elevated levels of inflation is fundamentally bullish for gold prices, Powell’s statement that “if excessive inflationary pressures were to build….we would not hesitate to act” may concern bullion buyers, suggesting that perhaps only a mild overshoot will be tolerated by the US central bank.

US Jobless claims

Data Source – Bloomberg

Nevertheless, shifting focus to the FOMC’s second Congressionally-assigned goal of maximum employment it seems clear that an extension of stimulus measures is not only likely but necessary, as initial and continuing jobless claims remain at levels more than three times higher than the peak seen during the 2008 global financial crisis and the unemployment rate hovers at 10.2%.

Of course, the number of claims has declined significantly over the past 5 months and may be indicative of a recovering labor market.

However, high-frequency data suggests this recovery may be beginning to run out of steam as job postings on Indeed – the self-proclaimed number-one jobs website in the world – fell for the second consecutive week, ending a three-month run of consistent increases.

With that in mind, the Federal Reserve may have to expand its quantitative easing program in response to significant labor market slack in the coming weeks, after keeping its balance sheet steady at just under $7 trillion.

A marked increase in asset purchases probably intensifying bullion’s surge to fresh record highs by capping the potential upside for short-term bond yields and weighing on the performance of the liquidity-rich US Dollar.

Federal Reserve Balance sheet

Data Source – Bloomberg

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES