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The taper ball is back at Jay Powell’s feet. How the Fed Chair kicks it could well decide the fate of gold in the coming days, weeks and months.

After his deft July FOMC play that all but killed any speculation of a near-term stimulus pullback, the U.S. non-farm payrolls report for July released Friday has produced a new cliffhanger in the pandemic-era monetary management game.

There won’t be another Federal Open Market Committee meeting this month for Powell to contend with.

Instead, there will be the Fed’s more intense Jackson Hole retreat, where Powell and other dovish-minded central bankers on the committee will find it harder not to discuss taper or the eventual U.S. rate hike – especially after the July jobs creation that came in just about 50,000 shy of a million, with an unemployment rate of 5.4%.

Some 17 months into the pandemic, the Fed is finally less than 1.5% from its 4% target for full employment. Surely, that should suggest a rethink to a central bank still faithfully buying $120 billion of Treasury bonds and mortgage-backed securities each month to support the economy, and insistent on keeping rates at near zero while real inflation via its favored core Personal Consumption Expenditure gauge jumped its most three decades in the year to June.

It’s hard to turn a dove like Powell into a hawk, but it should be remembered that just three years ago, he raised rates three times in 12 months. Like me, Craig Erlam, analyst at New York broker OANDA, thinks the Powell-led FOMC will find any excuse to not kick the taper ball straight towards the goal of scoring one against inflation.

But it’s going to be tough for the Fed chief to stick to his original window of no tightening for at least another year now, says Erlam. “It’s going to take some dreadful data over the next month to stop the Fed announcing something on tapering in September and with Jackson Hole only a few weeks away, at which policy makers including Jerome Powell could lay the groundwork, time is running out,” he adds.

The Jackson Hole retreat is scheduled between Aug 26 and 28. But between that, the incessant chatter of Fed officials, both dovish and hawkish, at various speaking engagements isn’t going to bring clarity to where the central bank is going with immediate tightening ideas.

We could already see this week how James Bullard of the St. Louis Fed and Richard Clarida, vice chair of the central bank, tried to set market expectations with their hawkish themes versus that of Minneapolis Fed Chief Neel Kashkari, an established dove.

Bullard said the Fed should stop buying bonds to support the US economy as inflation and growth were well above expectations “and so much recovery is going on”. Clarida noted that tapering could begin later in the year and conditions for a rate hike should be ripe by end-2022. Kashkari, meanwhile, said Covid’s Delta variant could throw a “wrinkle” into the labour market recovery and the Fed’s taper timeline.

Notwithstanding the Fed noise, gold could have a tumultuous time hereon, after Friday’s tumble to $1,700 territory. This is especially so if the Dollar Index and 10-year Treasury yields – the “twin evils” to gold – continue surging on the July non-farm payrolls strength.

Eren Sengezer, who blogs about gold on the FX Live Forum, noted that the yellow metal’s RSI, or Relative Strength Index, fell below 40 on the daily chart for the first time in more than a month, suggesting that bearish pressure was building.

“The RSI also stays slightly above 30, showing that there is more room on the downside before gold becomes technically oversold and sellers look to book their profits,” Sengezer wrote.

Some, like OANDA’s Erlam, did not discount a renewed test of gold’s $1,600 lows.

“A break of $1,750 shines a light on $1,720 and $1,700, with $1,675 then interesting below that, should it get that far,” said Erlam.

“Should gold rebound off $1,750, then the key test to the upside will come around that previously reliable support level at $1,790,” he added. “But a look at the momentum indicators suggests any corrective move may not yet be forthcoming.”

Oil markets were also clubbed by the resurgent dollar and yields on Friday. But compared with gold, crude prices have better fundamentals anytime to weather a macro-driven selloff.

Gold Market & Price Roundup

Gold had its worst day and week in almost two months on Friday, crumbling to $1,750 lows, as the dollar sprung back from a recent spate of selling as a resilient U.S. jobs report raised questions about the continuance of stimulus provided by the Fed to markets and the economy.

“It’s the vengeful dollar,” said Philip Streible, precious metals strategist for Blueline Futures in Chicago. “DX is coming back in a way that’s delivering an excruciating blow to most commodities today.”

DX, the trading symbol for the Dollar Index, was up 0.6% at 92.81 as gold futures on New York’s Comex settled. It hit a near two-week high at 92.85 earlier, after tumbling to a one-month low of 91.82 earlier in the week.

Gold’s front-month futures on Comex settled down $43.40, or 2.5%, at $1,763.10 an ounce. For the week, it fell 3%.

A hedge against economic and political troubles as well as inflation, gold got a break just last week when Fed Chair Powell said the central bank wasn’t ready to raise U.S. interest rates yet as it was still focused on supporting a nation recovering from the coronavirus pandemic.

Powell also refused to go near any talk of when the Fed might consider tapering the combined $120 billion the Fed was plonking each month into Treasury bonds and agency mortgage‑backed securities.

Getting toward the Fed’s twin mandates of maximum employment for Americans and sustainable inflation were the goals, he reasoned.

The Fed’s lower-for-longer rates and indefinite stimulus for now might, however, be debated again after the U.S. July jobs report issued on Friday cited the creation of 943,000 new jobs that brought unemployment down to 5.4%. Economists tracked by Investing.com had projected just 870,000 new jobs for July, and a jobless rate of 5.7%.

Since January, gold has been on a tough ride that began in August last year – when it came off record highs above $2,000 and meandered for a few months before stumbling into a systemic decay from November, when the first breakthroughs in Covid-19 vaccine efficiencies were announced. At one point, gold raked a near 11-month bottom at under $1,674.

After appearing to break that dark spell with a bounce back to $1,905 in May, gold saw a new round of short-selling that took it back and forth between $1,700 and $1,800.
Oil Market & Price Roundup

Oil posted its worst weekly loss in nine months as a soaring dollar on Friday hobbled any attempt by crude prices to rebound on Mideast tensions, after a week of negative news on Covid.

New York-traded U.S. West Texas Intermediate crude, the benchmark for U.S. oil, settled Friday’s trade down 81 cents, or 1.2%, at $68.28 per barrel. For the week, WTI lost 7.7%, its most since the 10% drop during the week to Oct. 23, 2020.

London-traded Brent, the global benchmark for oil, settled down 59 cents, or 0.8%, at $70.70 per barrel. Brent lost almost 7% for the week, its biggest weekly decline in nine months.

Oil and most other commodities tumbled as the dollar sprung back from a recent spate of selling amid a resilient U.S. jobs report for July.

“A stronger dollar will likely prove to be a drag over crude prices in the short-term,” said Ed Moya, who heads research for the Americas at brokers OANDA.

Crude prices were down for the first three days of the week amid a global surge in coronavirus cases from the Delta variant that cast a pall over the outlook for oil demand.

In the United States, the world’s biggest oil consumer, COVID-19 cases hit a six-month high with more than 100,000 infections reported earlier this week, according to a Reuters tally.

Crude prices did manage to catch a break on Thursday on Mideast tensions as Israeli jets struck purported rocket launch sites in Lebanon in response to an earlier attack, allegedly by Tehran. That was before the dollar’s rebound on Friday put paid to any further rebound in oil.

Energy Markets Calendar Ahead

Monday, Aug 9

Cushing inventory data from surveyor Genscape

Tuesday, Aug 10

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Aug 11
EIA weekly report on crude stockpiles
EIA weekly report on gasoline stockpiles
EIA weekly report on distillates inventories

Thursday, Aug 12

EIA weekly report on natural gas storage

Friday, Aug 13

Baker Hughes weekly survey on U.S. oil rigs

Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.

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