Federal Reserve Chair Jerome Powell’s remarks on Friday, known as the “Friday Thunder,” sent ripples across financial markets. Speaking from the scenic Grand Tetons in Wyoming, Powell hinted at a possible rate cut, causing the dollar to drop sharply. As a result, gold prices saw a modest rise, closing at 2,549 on Friday, up just 3 points from the previous week’s close of 2,546.
Dollar Takes a Hit
The dollar has been declining steadily since mid-year, but Friday’s drop was one of the steepest, ranking as the second-worst trading day of the year on both points and percentage basis. Despite the dollar’s decline, gold’s response was more muted. While prices did climb, they did not reach another all-time high, which was set earlier in the week at 2,570.
Gold’s Volatile Week
Gold has been prone to selling off after hitting new highs this year. This trend continued last week when, after reaching 2,570 on Tuesday, gold fell to a low of 2,506 by Thursday, a drop of 64 points or 2.5%. This decline is relatively small compared to other three-figure drops observed earlier in the year. Currently, gold is trading above its smooth valuation line, indicating a potential for further price adjustments.
Long-Term Prospects for Gold
Despite recent fluctuations, long-term indicators suggest that gold is still undervalued. The current price of 2,549 is significantly below the estimated value of 3,706, which accounts for the increase in gold supply and dollar debasement. Historical trends suggest that gold will eventually rise to meet this value, even if there are short-term declines along the way.
S&P 500 and Economic Indicators
The S&P 500 has experienced a strong rally in August, gaining 10.2% in just 14 trading days. However, this rally lacks support from the MoneyFlow, which indicates that the rise may not be sustainable. Additionally, economic indicators, such as the Conference Board’s report on “Leading Indicators,” showed a drop of 0.6% for July, double the expected decline, suggesting economic weakness.
Looking Ahead
The Federal Reserve is expected to cut rates at its next meeting on September 18, with some analysts predicting a reduction of up to two pips. However, given the recent economic data, a smaller cut of one pip seems more likely. As markets react to these developments, gold remains a strong investment option, even if it faces some short-term declines.
In conclusion, while gold’s performance last week was modest, it continues to show strength amid a weakening dollar and economic uncertainty. Investors should keep an eye on the upcoming Federal Reserve meeting for further market direction.