Gold has soared 1.53% on the day as the market reacts to Federal Reserve Chairman Jerome Powell’s comments from the Jackson Hole economic event.
Powell reiterated the central bank’s commitment to the dual mandate of full employment and market price stability, but the real driver for gold was his comments that they would continue to target a 2% inflation level for the longer-term. His comments also implied that the bank would be happy to allow a figure higher than 2% if it meant it would allow inflation to average their target. The comments confirmed to traders that the Fed would continue to fight deflation with stimulus measures and will ensure that the bank’s balance sheet will remain at the current high levels, whilst the potential for inflation running hot at times, also exists.
U.S. Core PCE Release
Today’s U.S. session brings another inflation indicator in the Core PCE index. The market is expecting a figure of 0.5% versus 0.2% in the previous month. If the number were to come in higher then god could see another boost on the day.
U.S. bank Wells Fargo this week released a report where they warned that gold’s bullish run was signal of, “a growing lack of trust in the world’s monetary system. ” The report highlighted the trends of low-interest rates, heavy government stimulus, and a weakening dollar. The bank suggests that investors may be running out of faith in central bankers, and their ability to control inflationary pressures.
Gold Price Technical Outlook
Gold has rallied from a key uptrend support line near $1920 and is now trading $1958. A strong close for the day will be bullish and will likely see gold retest the 18th August high at $2015. On the downside, a close below the $1920 level would remove the bullish case, but we have tested that twice this week, and the next path should be higher.