Gold prices were down slightly overnight but bounced back in early trading on Monday. Bears continue to be active, though, as bullish charts, a stronger dollar, and higher Treasury yields, and an even more hawkish Federal Reserve all weigh on sentiment.
Powell has struck a hawkish tone towards China.
Today's stock market sell-off comes after Jerome Powell's Jackson Hole symposium, where he laid out his thoughts on monetary policy. Investors were concerned that Powell would go even further than previous speakers and signal an interest rate hike next year.
It appears highly unlikely that the Fed will pause or reverse direction in its upcoming policy announcement. Given Powell's recent comments and past statements, it seems extremely unlikely they will change their tune.
If the Federal Reserve continues down its current path, there could be trouble ahead for the U.S. economic outlook and financial markets. Concern about a potential downturn has already risen significantly in recent months. If they look to slow the pace of the U.S. recovery even further, those worries are likely to rise substantially.
The Economy is Slowing
The Federal Reserve acknowledged that the U.S. economic expansion is slowing down, but they believe the labor markets remain strong, and the overall level of unemployment is low. They expect to keep raising interest rates gradually until the jobless rate reaches its target levels.
If the Federal Reserve continues to tighten monetary policies, the U.S. currency and long-term Treasury bonds could continue to climb. This could have a negative effect on the price of gold and could put further downward momentum into the gold market. However, the bears have been able to absorb the selling pressures so far, but additional selling might be too much for them to handle.
Despite Powell's speech yesterday, some people may still think that the Federal Reserve will soon begin to ease off its monetary stimulus program. However, it now seems almost certain that the Fed will continue to hike interest rates until at least December 2018. If the Fed decides to start easing again sometime next year, it could be a big reason why gold prices rise and the U.S. dollar falls.
There are other factors that may affect gold prices.
Besides the Fed’s plans, the gold market might also need to watch out for other scenarios. For instance, the threat of a Chinese military incursion into Taiwan could linger over markets for years to follow. Russia invading eastern Ukraine and Nancy Pelosi visiting Taiwan could increase the likelihood of such an outcome.
If China decides to attack Taiwan, the United States and Western forces would most likely intervene. This could potentially lead to World War III and an economic crisis worldwide.
The yield curves remain inverted. Some key pieces from economic news are starting to show cracks. Some have even suggested that the U.S. economy is already in recession. Either way, tough times may lie ahead.
With the recent economic turmoil in the United States, there has been a lot of talk about whether or not we're headed into another recession. If we are heading into another recession, then volatility might increase in the coming weeks. However, if we aren't going into another recession, then there isn't likely to be any significant change in the price of precious metals.
Gold prices have remained relatively stable recently. However, they could see some volatility if the price continues to remain sideways.