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Gold Price Bounces Off Support, Volatility Picks-Up as Markets Wait for Fed Chair Powell's Speech

Gold Price Bounces Off Support, Volatility Picks-Up as Markets Wait for Fed Chair Powell's Speech

Nick Cawley, Strategist

Gold (XAU/USD) Analysis, Price and Charts

  • Gold in a holding pattern ahead of risk events.
  • Markets are expecting looser for longer from Powell.

The price of gold continues to trade either side of $1,950/oz. in early turnover after failing to break trend support on Wednesday around $50/oz. lower. Volatility in the precious has been on the rise all month and may push even higher as Fed chair Jerome Powell readies his eagerly-awaited opener at the virtual Jackson Hole Symposium. Price action in gold has been out-sized recently after the precious metal hit a record high of $2,075/oz. earlier this month and today’s speech by Jerome Powell may well prompt further volatility across the commodity space and beyond. Financial markets expect Jerome Powell to allow inflation to overshoot the 2% central bank target and pivot towards Average Inflation Targeting (AIT) alongside lower for longer US interest rates. Higher inflation and stable-to-lower US treasury yields will turn US real yields further negative, a positive driver for gold. In turn, if Powell’s speech disappoints the market, gold may take a sharp turn lower.

After testing the $1,900/oz. handle yesterday, gold bounced sharply higher aided by the multi-month supportive trendline. The 50-day moving average also cuts across around $1,900/oz. giving support further credibility. A cluster of recent highs and the 20-dma appear between $1,970/oz. and $1,990/oz. and this zone will likely act as short-term resistance if Powell’s speech confirms a lower-for-longer US dollar. The supportive trendline is currently around $1,904/oz. while the 14-day average trading range (ATR) is around $38/oz.

Gold Daily Price Chart (January – August 27, 2020)

Gold Price Bounces Off Support, Volatility Picks-Up as Markets Wait for Fed Chair Powell's Speech

IG client sentiment shows that retail traders are 76% net-long gold with the ratio of traders long-to-short at 3.2 to 1. We typically take a contrarian view to crowd sentiment and the fact that traders are heavily long gold would normally give us a negative outlook. However, recent changes in client positioning – traders are less net-long than yesterday and last week - suggests that gold may move higher, despite the fact that traders are long.

What is your view on Gold – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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