Gold prices continued to be under pressure in early trading on Friday. The US dollar (USD) remained firm at a two-week high, supported by encouraging US economic data and diminishing expectations of a September interest rate cut.
The focus now shifts to the important speech by Federal Reserve (Fed) Chairman Jerome Powell in Jackson Hole tonight.
USD Strength Limits Gold Movement
USD continued to strengthen as a result of the support of positive US economic data, in addition to the weak performance of the Wall Street stock market this weekend. This situation made gold sellers remain dominant, while the market expects Powell to be cautious in giving his opinion.
Strong Economic Data Changes Market Expectations
Some recent data shows that the US economy is still strong:
Existing Home Sales (July): 4.01 million units compared to 3.92 million expected, up 2% compared to June which fell -2.7%.
Composite PMI (August): rose to 55.4, an eight-month high.
Manufacturing PMI: 53.3 (higher than 52.8 expected).
Services PMI: 55.4 (slightly higher than 55.0 expected).
The strength of the data led the market to reduce expectations of a September rate cut to 75% from 85% before the data was released.
Wall Street Falls, USD Gains Interest
The major US stock indexes fell sharply as investors became more cautious about the prospects of investing in the Artificial Intelligence (AI) sector. The fall increased capital flows into the USD as a safe haven, thus weighing on gold prices.
Powell's Speech Will Be Crucial
The market is viewing Powell's speech in Jackson Hole as a pivotal moment. He is expected to signal a change from the 2020 pandemic-era policies, including:
Flexible inflation policy, and
A focus on low unemployment.
A more hawkish tone could further strengthen the USD, pushing gold below $3,300. However, if Powell gives a more dovish signal, the USD could weaken again and gold could potentially rebound to $3,371-$3,400.
Conclusion
Currently, gold faces downside risks with a critical support zone seen around $3,314-$3,256. Powell's speech tonight is expected to be the main driver of the next direction.
Investors should be prepared for sharp fluctuations as Powell's tone will determine the direction of the Fed at the September meeting and beyond.
