Outlook For Gold Looks Bullish From Here

 The yellow metal has stumbled much of this year as vaccine rollouts, stronger-than-expected recoveries in some economies and worries over rising interest rates dimmed its appeal.  However, Jackson Hole, Delta variant and inflation continue to be the biggest challenges around the world.

All eyes were focused on Powell’s speech which was is slightly dovish but not dovish enough to jump-start any large-scale buying in precious metals. RSBL gold hit a 3-week high on Friday, notching its best weekly gain since May after Federal Reserve Chairman Jerome Powell failed to give a clear timetable for tapering U.S. stimulus spending at the central bank’s much-anticipated Jackson Hole monetary policy symposium.

The gold market saw immediate gains after Federal Reserve Chair Jerome Powell sounded more cautious than other Fed officials when talking about tapering, stating that the central bank could start reducing its $120 billion in monthly bond purchases this year. The spike in the prices relieved the gold dealers in India. In his speech at the Jackson Hole economic conference, Powell stated that the U.S. central bank will remain patient and reiterated that he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process - defence in the effect of current Fed policy. During the speech, Powell also noted that “more progress” has been seen in the jobs market, but this growth is now coinciding with “the further spread of the Delta variant,”. He also stated that there is more ground to cover to reach maximum employment.

Gold bounced over 1% on Friday after Federal Reserve Chair Jerome Powell stopped short of signalling when the U.S. central bank would start withdrawing its economic support and reiterated his view that current price spikes are transitory. Strengthening gold further, Powell used the Delta variant as a shield to buy time for more employment data before a taper announcement. The Fed won’t make a taper announcement at least till the next two months. Lending a further boost to bullion, benchmark U.S. Treasury yields and the dollar weakened after Powell’s comments.

The dollar and U.S. Treasury yields tumbled while risk assets from stocks to commodities, including oil, rocketed on the move. Gold, while labelled as a haven, got a ride higher as well, given its sensitivity to inflation, which typically propels the yellow metal’s prices.

Further, we saw gold demand coming in from China and Germany, lending support to the yellow metal. Demand for gold, specifically heritage gold, was on a spike. This rise in demand led to the strengthening of gold prices, pleasing the top gold dealers in India. Moreover, as per the World Gold Council, demand for physical bullion in Germany, traditionally the biggest coin and bar buyer in Europe, was the highest since at least 2009 in the first half. Germans, in particular, are pouring into the metal as a hedge against rising inflation and strengthening gold’s appeal as a haven asset.

Overall the outlook for gold looks bullish from here, finally giving a sigh of relief to the largest bullion dealers in India.

Gold’s Near Term Looks Mixed

The gold market looks a little chaotic as prices have been unable to break resistance at $1,800, discerning a lot of gold dealers in India. At the same time, sentiment among retail investors and Wall Street analysts shows no clear direction in the upcoming term, concerning even the largest bullion dealers in India. Investor sentiments have been relatively volatile in the last few months. Even though gold stabilized after last week's flash crash, it failed to breach the $1,800 an ounce level. A very keen eye is being kept on the delta variant, Afghanistan headlines, and the Federal Reserve's tapering signals at the upcoming Jackson Hole meeting.

Even though gold was quick to stabilize above the $1,700 an ounce following a flash crash last week, there is not enough interest in gold to keep prices trending higher, and gold failed to breach the $1,800 an ounce level. This puts it at risk of another significant selloff. Apart from this, more reasons can be cited as being responsible for gold's behaviour -

• Chinese Economy - The moves came against the backdrop of a jump in Chinese equity markets – after President Xi Jinping hinted at more stimulus measures to support the economy in an editorial over the weekend. The stronger tone in stocks capped gains in gold keeping the virus concerns aside.

• ECB - Finance ministers from the eurozone are due to discuss a document that could lead to the relaxation of fiscal rules that are governing the bloc. This will allow more room for fiscal stimulus and reducing the risk of further rate cuts from the European Central Bank. Given that the ECB’s negative rates are a significant pillar for European portfolio gold purchases, any clear commitment to fiscal easing could be marginally negative for gold. On the flip side, the Afghan chaos is unravelling with the US President Biden saying that the worst still awaits from Afghan. Biden is being criticized for his Afghan withdrawal as his nationals and citizens of many other countries could not get out of the country. All these odds are helping gold to sustain $1775-$1780 the whole of the last week.

The market tilt is slightly negative with the close under pivot. The near term upside target is $1795.30. The next area of resistance is around $1789.5 and $1795.30.

The main event next week is the Jackson Hole symposium. The headline discussion will be 'Macroeconomic Policy in an Uneven Economy,' but the focus will be on bullion markets in India. The discussions will surround what appears to be an impending tapering of the Fed's QE asset purchase program and low-profile US economic data flow before Jackson Hole comment on Fed’s Powell on August 26. The U.S Delta variant is also another rising factor that is impacting consumer sentiments. This will result in gold taking on haven while we reiterate crossing 1802 -1805$ this week.

Gold's near-term outlook looks mixed because the Federal Reserve has indicated tapering. If they continue to reiterate that view, it will weigh on gold as we could see the dollar strengthening and a rally in yield. We do have a two-sided market at the moment. One side is that the dollar is relatively strong of late due to the expectation that the Fed will move towards tapering, based on the recent commentary. Another side is that we still believe there is underlying support in the gold market right now. We are starting to see some drags from Delta on the global economic recovery.