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Gold rises as dollar falls and global geopolitical tensions renew

Since Friday's trading began, the price of gold has offset yesterday's losses by climbing towards the resistance level of 1960 dollars an ounce after the price of the yellow metal fell to the support level of 1910 dollars an ounce after the expected announcement yesterday by the Us Federal Reserve of adjustments in its monetary policy numbers.

gold-rises

 

The world's largest central bank, governor Jerome Powell, has announced a new approach to inflation and interest rates. This has caused strong ups and downs for both the price of gold and global financial markets. The yellow metal offset losses after the dollar index fell below 93.00.

During this week's trading the price of gold fell by 1%, and the metal is heading for a monthly loss of about 0.5%. From the beginning of 2020 to date, the yellow metal has increased by 28%. For silver, the sister commodity of gold, the price of silver is settling around $27.50 an ounce and the white metal has fallen by 1% this week, but has risen by more than 14% so far this month. From the beginning of the year to date, silver prices have increased by 51%.

Yesterday, Federal Reserve Chairman Jerome Powell delivered prepared remarks at the annual Jackson Hole Symposium. Powell, hypothetically, announced a major shift in policy on how to deal with inflation that would keep interest rates virtually low for longer. The central bank's "strong adjustments" to the long-term target statement and monetary policy strategy would prompt the Fed to allow inflation to operate "moderately" above the long-term target of 2%. The Bank therefore no longer needs to raise interest rates when the unemployment rate falls – it is believed that lower unemployment leads to higher levels of inflation.

Powell believes this will be beneficial to low- and middle-income families in the United States.

"Many find it illogical for the Fed to want to increase inflation," Powell said. However, persistent inflation in extreme decline can pose serious risks to the economy. [The situation] can lead to an undesirable drop in long-term inflation expectations, which in turn can push actual inflation to a lower level, leading to a cycle that is contrary to persistently low inflation and inflation expectations. This change may seem accurate, but it reflects our view that a strong labor market can continue without causing inflation." 

Analysts were surprised that there was no rise in the price of gold, but the reason is that the market realizes that everything the central bank president said was already expected.

In other remarks, Powell noted that the U.S. economy "will go through this period," but he also sounded the alarm that many workers will continue to struggle to find jobs. He added that small businesses will continue to seek "direct assistance" from Congress instead of loans to survive COVID-19.

In terms of economic data, initial unemployment claims were above the million-dollar threshold for the second week in a row, while the gdp growth rate for the second quarter was better than expected -31.7%. Thus, the Us dollar index DXY, which measures the Us currency against a basket of major currencies, has swung past 93.00, but then wiped out all its gains and has now fallen to 92.97.

The most important levels of support for the price of gold today: 1942, 1930 and 1915 respectively.

The most important resistance levels to the price of gold today: 1966, 1980 and 2020 respectively.