In the era of relatively high inflation, investors are getting rid of gold instead of buying, despite the fact that bullion is commonly associated with a potentially safe investment that is supposed to protect capital from inflation. The current trend may be related to a symposium of central bankers that begins today.
According to capital flow data, investors are divesting gold from ETFs in anticipation of Federal Reserve chief Jerome Powell's speech at the Jackson Hole symposium. This may suggest a degree of caution about the tapering announcement, which could come as early as Friday afternoon.
Two likely scenarios
The SPDR Gold Shares ETF is on track for its ninth week of decline in the past ten weeks. Amid recent signs of the Fed's intention to scale back asset purchases - particularly the latest set of FOMC minutes - their value has fallen to its lowest level in more than a year, according to a report by Bloomberg.
Further outflows seem likely as Powell's clearer roadmap on how and when to reduce asset purchases emerges, which could be good for the dollar, which in turn could be bad news for gold. Of course, the Fed chief could surprise - he tends to be more dovish than many in the U.S. central bank, and that could have the complete opposite effect and rush gold demand and investors back. It is also worth noting that although gold ETFs have been declining for the past two months, the price still remains in the $1,750-$1,835 area. Therefore, it is worth watching this range and a possible lasting breakout from it.
Dollar exchange rate - Powell's words are also important here
The US Dollar Index remained on Thursday at 93 points, slightly below the 9-month high of 93.6 last week. Here too, the market is waiting for the Fed chief's statements. Powell is expected to provide more details on the Fed's tapering plans tomorrow.
At the beginning of the month, investors expected the Fed to start tapering stimulus this year, but during the week such a version became slightly less likely due to weak economic data from the US, including PMIs and consumer sentiment, as well as concerns about the delta variant of the coronavirus. The dollar is likely to remain in a narrow range until Powell's speech on Friday, although fresh data due to be released on Thursday and Friday, including the second estimate of GDP growth and personal spending and PCE inflation, could introduce a bit more volatility into forex pairs with the US currency.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.31% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
