Gold remains supported into Jackson Hole event after US Treasury ignited ‘debasement’ trades
FUNDAMENTAL
OVERVIEW
Gold surged on Wednesday after the US Treasury announced that it will at
least double the size of its liquidity-support buyback operations for
longer-dated Treasury securities, increasing the maximum purchase from $2
billion to at least $4 billion per operation.
US Treasury Secretary Bessent then said that part of the operation was
sending a message to the market that yields do not reflect underlying
fundamentals and added that the buyback could be more than $4 billion depending
on conditions.
The Treasury intervention in the market had a QE-like effect by lowering long-term yields and easing financial conditions, although
it’s not technically QE. The US Treasury announcement brought down real yields as inflation expectations rose faster than long-term nominal yields due to
the Treasury’s intervention.
In the long-term, long-term yields are driven by monetary policy as they
are just the average expected path of short-term interest rates over the life
of the bond plus a term premium, but they are more sensitive to changes in
economic outlook.
That’s why the focus will now shift to the Federal Reserve and Warsh’s
speech at the Jackson Hole Symposium next week. I was expecting it to be a
non-event given Warsh’s preference of not giving forward guidance and the fact
that the soft NFP and CPI reports eased Fed tightening concerns. After the
Treasury buyback announcement, though, the speech could actually be a
market-moving event.
If Warsh doesn’t lean against the easing in financial conditions, the
current “debasement" trades like long precious metals, bitcoin and
short US dollar will likely extend further. On the other hand, if he pushes
back saying things like “recent easing in financial conditions, if
sustained, could complicate the process of returning inflation to our
target" or “if recent easing threatens progress toward price
stability, we will not hesitate to respond appropriately" and so on, the
market may interpret it as a signal for a potentially hawkish September FOMC
and trigger pullbacks in the “debasement" trades.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold has broken above the key trendline around the 4,400 level
following the US Treasury announcement and extended the gains above the 4,600
level. The natural target for the buyers should be the swing high around the
4,890 level. That’s where we can expect the sellers to step in with a defined
risk above the level to position for a drop into the 3,885 level. The buyers,
on the other hand, will look for a break higher to increase the bullish bets
into the next swing high around the 5,400 level.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we have
an upward trendline defining the bullish momentum. If we get a pullback into
the trendline, we can expect the buyers to lean on it with a defined risk below
it to keep pushing into new highs. The sellers, on the other hand, will want to
see the price breaking below the trendline to pile in for a drop into the 3,885
level next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we
have another minor trendline defining the momentum on this timeframe. The
buyers will likely continue to lean on the trendline with a defined risk below
it to keep pushing into new highs, while the sellers will look for a break to
pile in for a pullback into the next trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have US Treasury Secretary Bessent unveiling the sanctions against
Iran. Tomorrow, we get the US Consumer Confidence report. On Wednesday, we have
the US PCE price index. On Thursday, we get the US Jobless Claims figures. On
Friday, we conclude the week with Fed Chair Warsh’s speech at the Jackson Hole
Symposium.
This article was written by Giuseppe Dellamotta at investinglive.com.