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Asset Watch
Thursday, August 22, 2024
With inflation slowing and investors pricing in more rate cuts, USD has underperformed in recent weeks. And with gold sensitive to the movements of the U.S. dollar and real interest rates, lower Treasury yields have also helped boost the yellow metal.
But with Fed Chairman Jerome Powell scheduled to speak at the annual Jackson Hole Economic Symposium on August 23rd, could it be a ‘sell the news’ event?
More than just a play on interest rates and the U.S. dollar, gold has plenty of fundamental wind at its back. From geopolitical tensions to election uncertainty, safe-haven demand remains robust. In addition, with central banks also increasing their gold reserves, a perfect storm of bullish fundamental catalysts has the precious metal riding high.
Although the long-term outlook remains constructive, the short-term backdrop may signal caution. For example, with investors known to front-run the news, a dovish Powell could mark a short-term top.
As evidence, the horizontal white lines mark the past three Jackson Hole events. As you can see, short-term pullbacks occurred soon after in 2021, 2022, and 2023. Consequently, while this time may be different, traders often use historical results to guide their decisions.
A logical correction could push gold back to its five-week moving average (the blue line). The yellow metal has surged above it, but it usually doesn’t take long for the two to reconnect. If a larger correction unfolds, the 20-week MA (the yellow line) has been a solid long-term support level, and largely marked the lows in February and August 2024.
To stay invested and manage risk, placing your stop-loss order slightly below the 5-week MA could limit your downside and ensure you don’t miss out on future upside. For more aggressive traders, a short position may be appropriate after Powell finishes his speech.
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