Gold Has Another Stormy Session Before Closing Higher

By Barani Krishnan

Investing.com – Gold swung nearly $50 on the day before settling up 50 cents in New York futures trade, demonstrating the yellow metal’s return to a rollercoaster mode from the one-way — higher — direction seen just days earlier this week.

Benchmark December gold futures on Comex settled at $1,946.80 versus the previous session’s close of $1,946.30. The high for the session was a relatively close $1,962.95, while the low was a heart-stopping 1,916.90.

The spot price of gold, which reflects trades in bullion, was down $7.33, or 0.4%, at $1,939.77 by 3:00 PM ET (19:00 GMT). Spot gold, which typically trades at a discount to Comex, traded between $1,956.05 and $1,911.75 for the day.

The Dollar Index was again to blame for Friday’s gyrations in gold. The index, which tracks a basket of six currencies weighed against the dollar, gained 0.5% by 3:00 PM ET, hovering at 93.25. Over the past three days, the greenback has been on a logic-suspending rally, while gold has suffered, both driven by the Federal Reserve’s meeting minutes for July released on Wednesday.

The Fed, at its July 28-29 meeting, dismissed the notion that it should exert controls over the yield curve, the minutes showed. Benchmark yield from the U.S. Treasury’s 10-year note had been negative for most of the past two months and forex traders had been hoping the Fed would keep it that way by subjecting controls on the instrument. When the central bank balked at the idea, it gave forex traders an excuse to drive the Dollar Index higher — despite the trillions of dollars of stimulus issued by the U.S. Congress and actions by the Fed to support a pandemic-struck economy.

While U.S. home sales and PMI data were supportive to the dollar on Friday, its continued stay at the 93 handle baffled many analysts who expected a range of below 92.5 as fair value.

The door isn’t closed, however, for gold’s return to $2,000, analysts say.

The Fed’s annual Jackson Hole symposium in Wyoming next week could energize gold bulls and dollar bears back into action as the central bank’s Chairman Jay Powell delivers its Monetary Policy Framework Review, which should double-down on the pledge for ultra-low rates and more currency debasement.

“Gold will likely resume the uptrend and revisit the record high of $2,075 if Powell signals greater tolerance for above-target inflation, fueling a deeper drop in real or inflation-adjusted bond yields and fresh sell-off in the greenback,” said Omkar Godbole on FX Street.

Ed Moya at OANDA had a supportive view of gold, too.

“The best thing for gold right now will be if the economic recovery continues but is not too robust, thus cementing the need for more fiscal and monetary stimulus. Too many risks to the outlook remain for anyone to abandon the gold trade.”