Will Powell’s Jackson Hole speech impact gold next week?

Gold is ending the trading week down more than $50 because the US dollar has strengthened to weigh, accordingly, on the precious metal ahead of the Jackson Hole economic symposium and Fed Chair Jerome Powell’s speech before the symposium.

Next week’s significant catalyst will be Powell’s speech before the Jackson Hole titled ‘Economic Outlook,’ which is scheduled for Friday. Markets remain divided on whether the Fed will hike rates by 50 or 75 basis points at its September meeting. Economists speak about a 56.5% probability of a 50bps hike and a 43.5% chance of a 75bps increase. Lower gold prices next week are also expected ahead of the Jackson Hole symposium while the US dollar might be up significantly. It seems relatively difficult for gold to rally in such an environment.

Gold, normally, reacts to the US dollar’s strength, as it has been facing this particular obstacle for most of the summer in the face of Fed’s aggressive interest rate hikes.

The dollar is rising against all the major currencies and cutting through key technical levels. Gold began the week near $1,800 and now is testing support near $1,750 now. At the time of writing, gold futures were trading at $1,764.86 per ounce, down 3% on the week.

The markets will be keenly watching any change in the Fed’s stance on rates. The Fed could abandon higher than expected rates. That is why the precious metal’s price action is slow and steady lower right now.

If there is some change at the Jackson Hole symposium, it could impact the gold market significantly. But that is not anticipated. Powell could say something about the housing market’s fall or the retail sector, and the stock market is not in bad shape considering the rate hike argument. Is the equity market telling us that the Fed won’t be as aggressive? The gold market tells us a different story because gold competes against Treasury yields.

Treasury yields are also rising again. One thing for gold, the real rate of interest has a strong correlation to the gold price. As expectations for higher rates get embedded deeper, gold will normalize, and real rates will have a more neutral impact. Right now, they are placing a damper on the gold price.

Fed has been pretty consistent at staying hawkish despite some mixed signals from the latest FOMC minutes released on Wednesday. The minutes from July showed that Fed officials agree on the need to slow down the tightening cycle eventually. They still believe that markets need to see how rate hikes impact inflation.

In 2022, any gold price rallies did not last for long, so if gold falls below $1,770 an ounce, this will bring about the $1,715 level.