The future direction of economic policy could be revealed today, as Federal Reserve Chairman Jerome Powell takes to the stage at the annual Jackson Hole symposium. The three-day policy meeting began yesterday (Thursday), but today is the most important date for markets as Powell’s speech is likely to lay out what happens next in terms of rate hikes or rate cuts.
The contents of Chairman Powell’s address could create significant turbulence in the market, making this one of the key days of the entire year for investors – and giving gold a huge surge of power in the run up to Powell’s speech.
Most economists expect that one further .25 base point increase will be confirmed at the symposium, but what isn’t known is whether rate increases will continue in 2024 or if there is a timeline for a shift towards rate cuts. With so many unknowns causing tension, the gold bulls have capitalised in no uncertain terms, gaining 2.15% on the week. This has seen prices gain over £32 ($40) during the course of trading between Monday and Thursday – this marks the precious metal’s best performance in around six weeks.
Feeding the bulls is a real sense of confusion about what happens next, given a resilient job market but decline in other sectors of the economy. U.S. Census Bureau data released on Thursday showed that durable goods orders (which covers items such as computers, planes, white goods, and cars) had declined by 5.2%, way over the 4% downturn that had been expected.
With so much volatility, markets can only wait and hope that the news from Jackson Hole is positive.
Nicholas Frappell, the global head of institutional markets at ABC Refinery says that Powell is likely to indicate that higher rates will continue to be needed for a longer period. In contrast, some Federal Reserve officials have suggested that they don’t see higher rates being required.
SMBC Nikko Securities America’s chief economist, Joseph LaVorgna has a third scenario. He expects the Chairman will be a little vaguer, allowing himself room to manoeuvre later. He said, “I just think he’s going to play it about as down the middle as possible. That just gives him more optionality. He doesn’t want to get himself boxed into a corner one way or another.”
Michael Malone, the US SPDR Business chief investment strategist has another take. “The Fed likely isn’t convinced inflation has been beaten,” he says. “As a result, there won’t be any curtain calls at Jackson Hole. Instead, investors should expect more tough talk from Chairman Powell that the Fed is more committed than ever to defeating inflation.”
With all these possibilities leaving markets unsure which way to turn, gold is shining brightly as a beacon of stability. Should Powell shock with his comments, we could see the bulls unleashed even further.
Don’t delay your move. Buy gold now.
