This week is light on economic data, but Fed Chair Janet Yellen is scheduled to talk on Friday at the annual Economic Policy Symposium hosted by the Kansas City Federal Reserve in Jackson Hole, Wyoming. What can we expect from this speech for the gold market?
Jackson Hole is one of the longest-standing and most important monetary policy conferences in the world. It is like the Olympics for central banking enthusiasts. The topic of this year’s conference (which is held since 1978) is “Designing Resilient Monetary Policy Frameworks for the Future”, which will likely cover expectations for the future conduct of the monetary policy. The event is closely watched, because Janet Yellen could use her speech as an opportunity to signal a more or less aggressive policy stance. The conference may be thus the most important hint of monetary policy direction for the markets before the September FOMC meeting.
What should we expect from Yellen’s speech? Well, she is likely to address the issue of low real interest rates and challenges resulting from them. Following John Williams’ report, Yellen may also talk about the rethinking of the monetary policy framework, which should be positive for the gold market, as such suggestions show that the current monetary policy is ineffective. On the other hand, she might also reiterate the willingness to further normalize rates before the end of the year, pointing out that conditions have increasingly been met. Any signals more hawkish than expected would be negative for the price of gold. The last FOMC statement and minutes were rather dovish, as they gave no indication of the possible timing of the hike. Thus, if Yellen signals the exact timing of the next hike, the price of gold will be under downward pressure. However, words cannot replace actions. And the truth is that over the last quarter of the century the Fed has never raised interest rates within two months of a presidential election.
The key takeaway is that the most important event this week for the gold market will be Yellen’s speech at Jackson Hole. It is of course impossible to predict what she will exactly say, but her words may significantly influence the gold market. For example, gold prices reached five-month highs in 2012 after Bernanke’s speech at this conference. We expect that Yellen could deliver a slightly stronger signal about the likelihood of a near-term rate hike, which would be negative for the gold market. However, the hawkish talk seems to us to be a calculated rhetoric to curb the markets, as it is likely the Fed has no plans to raise rates before the U.S. presidential elections. Only time will tell, stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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