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Gold Falls as Risk Appetite Grows; Jackson Hole Awaited

By Barani Krishnan

Investing.com - The Federal Reserve’s upcoming Jackson Hole, Wyo. retreat Is expected to boost gold prices on speculation of an imminent rate cut. But creeping risk appetite in the meantime is spoiling the party for longs in the yellow metal.

Spot gold, reflective of trades in bullion, was down $15.22, or 1%, at $1,498.32 per ounce by 2:10 PM ET (18:10 GMT), extending Friday’s 0.8% loss.

Gold futures for December delivery, traded on the Comex division of the New York Mercantile Exchange, settled down $12, or 0.8%, at $1,511.60. On Friday, gold futures fell 0.5%. Monday's decline came as stocks were mostly higher around the world.

Still, gold futures are up about 18% this year.

The Fed’s annual gathering of central bankers and policymakers from Thursday through Saturday is expected to lend direction on when the next U.S. rate cut will be.

While Fed Chairman Jay Powell’s speech on Friday will be a highlight of the gathering, other discussions that even remotely touch on interest rates can trigger significant market moves, especially with investors psyched up for another Fed cut in September. The Fed’s last rate change was a 25-basis-point reduction in July and any hints of further cuts will almost certainly boost gold prices.

Ahead of the Wyoming event, the Fed on Wednesday will publish minutes of its July 30-31 meeting. The meeting ended with the Federal Open Market Committee, the Fed's rate-setting body, cutting the key federal funds rate for the first time in a decade.

Jackson Hole aside, there will be more central bank watching this week, with the European Central Bank reporting its July minutes on Thursday, a day after the Fed’s.

While the ECB left rates unchanged last month, it did adjust its forward guidance to indicate that rates could go lower. That essentially means the ground has been laid for a potential September cut. It also indicated that it could revive its quantitative easing program in coming months.

Investing.com's Fed Rate Monitor Tool suggests a 96.2% chance the Fed will cut the fed funds rate to 1.75% to 2% from 2% to 2.25% now. President Donald Trump has been calling for deeper rate cuts.

But until Wednesday, the bullion market is expected to take its cue from a wide variety of drivers.

“A combination of a firmer U.S. dollar and modestly higher real U.S. yields is weighing on gold at the moment,” said John Reade, chief market strategist at the World Gold Council.

Some expected more volatility instead of gains by Friday.

“Given the policy uncertainties that may or may not unfold later in the week from the Jackson Hole symposium, gold could consolidate with a downward bias before eventually resuming its upward momentum,” Stephen Innes, managing partner at VM Markets, said in a note.

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