Good morning, traders! Welcome to your weekly look ahead at what matters in the gold and currency markets.
At time of writing thing morning, gold prices are lower to start the week but have managed to retake a position above $1500/oz following some deeper weakness starting in the European trading session overnight.
Much of the gold weakness can be attributed to strong equity performance to begin the week, driven by a rebound in optimism about an improvement in trade tensions between the US and China. That all seems, frankly, insane to me (to use technical term) because we’ve certainly seen how quickly that sentiment can shift with no warning and no reason. For that reason, the ongoing dispute between the world’s two largest economies will be an important watch for us once again this week.
Otherwise, our focus returns to the Fed over the next five days as we head towards the start of the annual Jackson Hole conference on Friday and Chairman Powell’s opening address. First, on Wednesday, we’ll get a look at the discussion notes from the Fed’s most recent FOMC meeting which resulted in the first cut to short term interest rates in a decade.
Let’s jump into our look at the week.
US Economic Data to Watch
Wednesday, August 21 at 10am EDT // Existing Home Sales (July)
[consensus expectations: +2.3% MoM // previous: -1.7%]
I’m not going to lie to you, readers: with everything that we’ve seen reverberate through precious metals and currency markets over the past several weeks I have a real hard time worrying much about the most recent round of housing data. Metrics of home buying and pricing are most valuable to observers as forward indicators of the US economy’s health, but it’s fair to say that we’re all on a pretty high condition of alert in those regards these days. Additionally, housing data doesn’t influence Fed policy at this point in the cycle in the same way as inflation levels or the labor market.
Nonetheless, as with Initial Jobless Claims data, I think it’s important to stay in the habit of tracking data that we know will be relevant for successful gold and US Dollar trading at some point, even if that point isn’t today. For this month, analysts are looking for a moderate rebound in Existing Home Sales following contraction in June. And, honestly, despite all my protestations just now it’s possible that better housing data this week could contribute to recent indications that the US economy isn’t yet in enough trouble to warrant deeper rate cuts from the Fed.
Wednesday, August 21 at 2pm EDT // FOMC Meeting Minutes (July)
I think the breakdown of the Jerome Powell & Co’s discussion minutes this month, and the general market reactions to it, will be slightly different this month and maybe more toned-down. While everybody with a trading account is trying to nail down whether another rate cut is coming in September, or how deep it might be, there will certainly be some helpful information in the meeting minutes; but keep in mind that thanks to Donald Trump’s sudden announcement of new inflammatory tariffs on Chinese goods, the economic landscape almost immediately shifted following the July FOMC meeting and so these minutes will feel a little bit outdated.
As antsy as equity markets are for further easing, I’d expected anything that suggests reticence from Fed officials to cut again to be mostly ignored while markets will run with any indication that the FOMC was willing to act again if waters got choppy again. That would presumably look like a boost to gold’s (as of this morning) faltering uptrend.
Thursday, August 22 at 8:30am EDT // Initial Jobless Claims
[consensus exp.: +216k // prev.: +220k]
The trendline in new jobless claims feels like it’s starting to nose higher, if only slightly for now. I’m not ready to ring the alarm at this point, but it has caught my attention lately. Consistently higher Jobless Claims would of course start to provide a regular tailwind for gold prices while pressuring the Dollar.
Friday, August 23 at 10am EDT // Federal Reserve Chairman Jerome Powell speaks
[Text of the Chairman’s remarks will be released to the public prior to 10am EDT]
Chairman Powell will kick-off the annual summit of central bankers in Jackson Hole with an address entitled “Challenges for Monetary Policy.” Do you think he’ll have much to talk about?
These tend to be heavily focused on academics, but at least a few pages of the Chair’s remarks will relate to current policy outlook. In those sections, investors and traders will be hoping for Powell to more explicitly confirm a second interest rate cut coming in September and parsing whether or not he will clear the path for it to be a deeper 0.50% cut.
With Chairman Powell and the FOMC caught in a tricky situation, I expect the odds of a September cut to increase on Friday morning while, given strong economic indicators (and a reminder that the stock market is not the economy,) Powell will be less willing to imply more aggressive action than another 25 basis point move.
Friday, August 23 at 10am EDT // New Home Sales (July)
[consensus exp.: -0.4% MoM // prev.: +7.0%]
Hard to imagine that this data point doesn’t get entirely swallowed up by Chairman Powell’s public remarks kicking off at the same time, although we’ll have had the text of Powell’s speech for some time by then, so attention can be split a little. Still, stick with good data habits and all that. Analysts are looking for a drop in New Home Sales this month, but not anything dire.
Global Economic Data to Watch
Thursday, August 22 at 4am EDT // Euro Area Composite PMI (Aug)
[consensus exp.: +51.2 // prev.: +51.5]
I touched on it last week, but we haven’t been covering a lot of European macro data here recently because virtually all of the impact on US Dollar and gold markets has come from US-generated headlines. That’s starting to change as we move towards the reintroduction of rate cuts and even new QE in the European economy. More so than at the Fed, it’s already taken as a given thanks to outgoing ECB President Mario Draghi that September will bring an interest rate cut and explicit plans for taking QE up once again; in Europe we know the medicine is coming, the only question is how severe the dosage will be. As we do with the Fed, analysts will use the major economic health indicators between now and September to estimate the ECB’s next move.
As a very brief refresher, in terms of gold markets I’d expect to see immediate weakening of the Euro when moves are announced and as the Dollar gets a boost in response then gold prices will likely move lower by some degree. The shift to easing in Europe can also be a limiter for gold prices over a longer time span: an environment in which most of the major central banks are doing some kind of easing dampens how much FOMC rate cuts will impact the Greenback relative to other major currencies, in turn limiting the tailwind gold can receive from a falling Dollar.
Thursday, August 22 at 7:30am EDT // ECB Meeting Minutes (July)
The ECB, in my mind anyway, tend to be a little clearer and more forthcoming in their communications at and between policy meetings; so there’s not really as much market impact to the release of their meeting minutes as we see from the FOMC. In the current environment though, and with the Jackson Hole summit bringing greater focus to central banks this week, I think there’s some potential for currency and gold markets to have more of a reaction to any new information we can glean from the discussion points this time around. As I touched on above, anything that suggests more aggressive easing by the ECB will apply some (probably muted) downward pressure to gold prices.
And that’s how the week lays out ahead of us, traders. It’s another quiet one (on paper, anyway,) but if there’s anything I’ve learned from the last month in the gold market, it’s that we’ll certainly have something to talk about when we wrap up the week on Friday. Best of luck out there, I’ll see you then.