Jerome Powell's Jackson Hole performance rubbed "balm" on the wounds of the XAU/USD bulls. Gold suffered severely from June to early August due to the Fed's intention to move to normalizing monetary policy against the backdrop of growing consumer prices by leaps and bounds. The Fed chairman once again tried to convince investors of the temporary nature of high inflation and said that there was no connection between the end of QE and the increase in borrowing costs. The central bank has set its criteria for monetary restriction and will continue to follow them. As a result, the chances of a federal funds rate hike in December 2022 plummeted from 69% to 54%, and the precious metal tested resistance at $1,820.
Interestingly, on the eve of Jackson Hole, the markets did not believe in gold, giving preference to debt obligations. According to Bank of America, citing EPFR Global, fixed-income funds raised $13.3 billion in the week of August 25. Capital outflows from precious metal ETFs totaled $1.4 billion, the highest figure since March. Most likely, sellers are biting their elbows, watching the XAU/USD quotes soar.
If monetary policy is normalized, gold will not be able to compete with income-generating bonds. However, with the slow curtailment of QE and the Fed's rate hike only in 2023, it has a chance. The fate of the precious metal depends on how fast the Federal Reserve moves along the road of monetary restriction. Despite Jerome Powell's assurances of the temporary nature of inflation, the rise in US home prices at a record pace since accounting began in the 1980s raises doubts.
Dynamics of real estate prices in the USA
The fact is that, following the cost of housing, rent is also growing, and its share in core inflation is about 30%. From the beginning of the year to July, the indicator jumped 13%. We are talking about its fastest dynamics over the past 5 years.
Factors such as globalization, technological progress, and an aging population allow the Fed to continue to adhere to the mantra about the temporary nature of high inflation. However, allowances need to be made for the colossal monetary and fiscal stimulus, as well as for problems with the supply of goods and labor.
In any case, inflation alone will not be enough. To raise the federal funds rate, the Fed needs the economy to return to full employment. In this regard, the increased attention of investors to the release of data on the US labor market for August looks logical. Bloomberg experts expect employment growth by 750,000. This is slightly lower than in June and July, but higher than in most other months of the year. The rise in the indicator to 1 million will launch a wave of XAU/USD sales. On the contrary, the numbers close to the forecast will provide short-term support for the bulls.
Technically, a lot will depend on the ability of gold buyers to hold the important level of $1,805 per ounce. It turns out that the risks of implementing the targets for the "Wolfe wave" pattern at $1,845 and $1,860 will increase. Closing the test bar below fair value will allow the precious metal to be sold.
Gold, Daily chart
