Gold Prices Slip on Day 2 as China-U.S. Trade Tensions Ease

Investors of commodities were watching for the latest update on Federal Reserve policy from a speech by Chairman Jerome Powell.  

This will be on the first days of the annual Jackson Hole central banker conference on Thursday. It could influence trade for precious metals.

U.S. and Chinese officials seem to reaffirm their commitment to an initial phase of a Sino-American trade deal. In fact, this was helping to calm some concerns that tensions between the two sides were intensifying.

Bullion, which has mostly been under selling pressure, finished lower in four of the past five sessions, including Tuesday.  Equities take cues from optimism on vaccines and treatments for the COVID-19 pandemic. 

There was much uncertainty about the economic impact of the pandemic. The uncertainty and outsize policy measures to combat it were at the heart of gold and silver’s rally since March.

However, the rally for precious metals has somewhat cooled. Minutes from the Federal Open Market Committee’s July meeting signaled that the policy-setting group was unwilling to use unconventional methods.

This was to keep benchmark interest rates lower, which was viewed as a short-term negative for gold.

Gold:

Stephen Innes, chief global market strategist at AxiCorp said that since the FOMC minutes, market participants have been reluctant. That was a reluctance to re-establish long positions in gold and short the dollar with any enthusiasm ahead of risks, specifically the September FOMC and the Jackson Hole Symposium, Innes said. He was referring to a Thursday speech by Powell, conducted via webcast, and the upcoming Fed meeting next month.

The market anticipates that later this week, Powell will outline a plan for targeting inflation. Consequently, this could provide them with more flexibility in allowing inflation to run above its annual 2% target.

Furthermore, this will help market participants anticipate policy moves. TD Securities strategists wrote, they’ll expect the Fed Chair to effectively pre-announce the outcome of the Monetary Policy Framework Review. 

This suggests the formal adoption of average inflation targeting, the strategists added.

Market experts say this could provide some buoyancy for metals because most consider gold as a hedge against inflation.

Gold and currency traders are positioning themselves for a limited upside impact from an announcement of a soft average inflation target. Given it has been well-telegraphed by Fed public statements, Innes wrote.

December gold GCZ20, -0.33% GC00, -0.34% was off $10.20, or 0.5%, at $1,929 an ounce. This was after the metal fell 0.4% in the previous session, according to commodity news.

According to FactSet data, this marked its lowest finish for a most-active contract since July 27.