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Commodity Market: Gold trades near two-week highs as Fed’s policy framework shift supports safe haven metal

Spot Gold traded not far from two-week highs in Europe on Monday, after a shift in the Federal Reserve’s policy framework indicated borrowing costs in the country would stay low for a longer period of time.

In his speech at the Jackson Hole virtual symposium last week Federal Reserve Chair Jerome Powell said the central bank would aim to achieve an average inflation of 2%, thus, allowing the rate to run moderately above or below that objective for some time to support economic recovery and employment. This means interest rates will probably remain at lower levels for longer despite a rise in inflation.

An environment of lower interest rates and massive monetary stimulus tends to support Gold, as the opportunity cost of holding the commodity is reduced. At the same time, this weighs on US Dollar valuation, which makes Gold less expensive for holders of other currencies.

In terms of physical trade, last week dealers in India introduced the biggest discounts on gold in five months, after lower domestic prices did not stimulate demand for the commodity.

The country registered a global record for new COVID-19 infections per day over the weekend, while confirmed cases worldwide have already surpassed 25 million.

As of 9:07 GMT on Monday Spot Gold was edging down 0.19% to trade at $1,961.24 per troy ounce, after earlier touching an intraday high at $1,976.78, or a price level not seen since August 19th ($2,006.74). The precious metal has retreated 0.87% so far in August, after four consecutive months of gains.

Meanwhile, Gold futures for delivery in December were edging down 0.34% on the day to trade at $1,968.10 per troy ounce, while Silver futures for delivery in December were up 1.03% to trade at $28.075 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was inching up 0.08% on Monday to 92.38, after earlier slipping as low as 92.15, or its weakest level since August 19th (92.15).

Meanwhile, near-term investor interest rate expectations were without change. According to CME’s FedWatch Tool, as of August 31st, investors saw a 100.0% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting on September 15th-16th, or unchanged compared to August 28th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,954.04
R1 – $1,984.89
R2 – $2,004.75
R3 – $2,035.60
R4 – $2,066.45

S1 – $1,934.18
S2 – $1,903.33
S3 – $1,883.47
S4 – $1,863.61

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