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22.08.201914:52 Forex Analysis & Reviews: Gold drifts lower as fears ease slightly, wait to buy on dips

Long-term review

Exchange Rates 22.08.2019 analysis

According to minutes of July's Fed's policy meeting, there were significant divisions with a three-way split between those who wanted a 0.50% rate cut, a 0.25% reduction, and no change in rates.

Those members who adviocate for a rate cut cited the move as a recalibration of policy stance or a mid-cycle adjustment in response to recent outlook changes rather than the start of an easing cycle. The minutes also reiterated that there was no pre-set course for policy.

The minutes overall dampened expectations of very aggressive Fed easing.

Kansas City Fed President George stated that now is not the time for policy accommodation and the dollar has maintained a firm tone.

The eurozone's PMI data beat market expectations with the manufacturing index at 47.0 from 46.5 previously while the services sector index edged up to 53.4 from 53.2. German manufacturing data recorded a slight improvement, but remained firmly in the contraction territory.

The data offered some reassurance over the outlook with waning fears that the downturn would gather pace.

In this environment, demand for safe haven assets has faded with net losses for the yen and Swiss franc. With the dollar also holding the upper hand across the board, gold has drifted lower having retreated to just below $1,495 per ounce.

Despite fragility, there is a likelihood of further market jitters and therefore higher demand for safe haven assets.

Comments from Fed Chair Powell will be watched very closely on Friday and he will need to steer a fine path between maintaining confidence in the outlook without dashing market expectations of further interest rate cuts. Overall, he is unlikely to be as dovish as widely expected that would undermine gold demand.

There are still strong reasons to expect further gold gains to $1,600 over the medium term amid an erosion of backing for fiat currencies. There is, however, a risk of a further correctional decline in the short term. Technically, immediate support is likely to be at near $1,492, although with the risk of a further net retreat to $1,480 per ounce.

*Analiza tržišta koja se ovde nalazi namenjena je boljem razumevanju tržišta i ne pruža instrukcije za vršenje trgovanja.

Tim Clayton,
Analytical expert of InstaSpot
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