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Gold - on the Rise or Fall?

2 September 2021

The world markets are again uncertain. Market participants are unsure whether a third wave o [Gold] f restrictions is likely, as well as how investors are watching the continuing rise in inflation in the USA. Economists are awaiting a decision from the Federal Reserve over the beginning of the reduction of the quantitative easing program from the American regulator. In this situation, quotes of safe haven assets such as gold are witnessing higher levels of volatility and at times price movements in both directions.

Since the beginning of August, leading analysts portraying the unshakable uptrend have been questioned as to whether the prices will remain high or if the price will give in to resistance. The price of Gold over the past three weeks has increased in value by 2.20%, but overall, we have witnessed more bearish price movements since the rise in 2020. The main reason is that the rather rapid recovery of the American labour market bolsters the hopes that the US Federal Reserve may begin to roll back the QE program much earlier than next spring, as officials have repeatedly stated.

However, in fact, the situation has not changed yet. Inflation remains high, and the volume of the asset buyback program remains unchanged. Last week, the head of the US Fed, Jerome Powell, said that the regulator is considering abandoning the QE program and plans to replace it with more effective measures. However, no terms or parameters of the new program have been identified. After this statement, quotes of the US dollar traditionally went up, but gold did not react to this in any way, which is a sign of an unchanged position on the part of large holders of the metal.

If we look at the state of the global speculative positions of gold, then, according to the Commodity Futures Trading Commission (CFTC), their number is consistently kept above 150,000, which indicates the presence of large buyers. Despite temporary fluctuations in the asset, the number of positions is steadily increasing sometime after the decline, indicating the desire of investors to increase their global positions at local minimums.

So, going forward what main influences are Gold traders concentrating on?

Without a doubt the US Dollar, the US Market and the COVID-19 pandemic are going to hold a high price drive among not only Gold but safe haven assets in general. Looking at the US Dollar over the past two trading days, we can see high levels of bearish movement, possibly due to the rise in COVID-19 cases as well as the unfortunate deaths. Deaths from coronavirus in the United States hit five-month highs last week, and the flu epidemic itself is now actively spreading in areas with poor medical and health facilities.

All this may force the US Federal Reserve to postpone the beginning of the reduction in the volume of bond purchases. Earlier, officials expected to begin adjusting monetary policy by the end of this year, possibly already in September. Still, with the growth of the next wave of the pandemic, this may not happen. The situation may be clarified by the head of the regulator Jerome Powell at the annual symposium in Jackson Hole, which will be held today. However, experts believe that the officials will be careful and stick to general statements about the observation of the situation.

Gold prices over the last 24 hours grew strongly, but as mentioned it is vital traders continue to monitor both the market as well as the price movements.  The price movement of Gold can be correlated with different elements of the market as explained throughout the article. The market participants are watching closely the Federal Reserve, the pandemic, and today’s Jackson Hole Conference.

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