XAU/USD Lurching Lower as USD Gains and Gold Slips

Gold

Gold price has continued to descend due to the direction of last week’s Jackson Hole symposium which continues to be felt across asset classes.

Fed Chair, Jerome Powell stated that inflation combating is the current priority of the Fed at this moment and till it successfully fights it off. He said, “The Federal Open Market Committee’s (FOMC) overarching focus right now is to bring inflation back down to our 2 percent goal.”

Certainly, this has been the norm for a while now, but after the July FOMC, the market seemed to have misinterpreted Powell’s speech as they thought he said that the Fed’s target rate was neutral.

Fed’s interest rates is always increasing per time causing Treasury yields to scale high across the curve as the USD finds support. This surge in the USD has causes commodities to fall pressured and the market sees a potentially slower global growth. Gold is not left unaffected in all of these.

After Jackson Hole, 10-year Treasury yields are around 20 basis-points (bps) higher, while the market lowered their expectation of where 10-year inflation is. It has downed by around 10 bps, as priced by the breakeven rate on Treasury Inflation Protected Securities (TIPS).

The nominal Treasury yield is lesser than the inflation rate for the same tenor. The US 10-year real yield is 30 bps above its position before Jackson Hole.

If the Fed continue to talk tough on inflation, will XAU/USD test new lows?

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