Gold price forecast (XAU): Is Powell’s speech in Jackson Hole leading to a breakout?

Jackson Hole Symposium: Main Focus for Markets

The upcoming Jackson Hole Symposium, scheduled to take place August 22-24, is expected to be a major event for financial markets. Hosted by the Federal Reserve Bank of Kansas City, the symposium will bring together central bankers, policymakers and economists from around the world. Investors are eagerly awaiting remarks from Fed Chairman Jerome Powell, which could provide important insights into the Federal Reserve's policy direction.

According to strategists at Bank of America (BofA), Powell could provide a clear view of the current economic situation and signal that the Fed is “very close” to starting an easing cycle. This would indicate confidence in controlling inflation while the focus shifts to maintaining a strong labor market. Powell could stress the need to avoid “unexpected weakness” in the labor market, suggesting that maintaining job gains could be the focus in 2024.

The market is widely expecting a 25 basis point rate cut in September, but strategists warn that a more hawkish statement from Powell could lead to a significant flattening of the Treasury yield curve. Historically, interest rate volatility tends to decline after the Jackson Hole event as political uncertainty decreases, particularly for medium-term maturities.

Inflation data and US Federal Reserve policy in focus

Recent US inflation data, including the Producer Price Index (PPI) and Consumer Price Index (CPI) for July, showed signs of easing inflationary pressures. The CPI rose 0.2% month-on-month and 2.9% year-on-year, suggesting a possible rate cut. The market currently expects the Fed to begin its rate-cutting cycle in September, assuming inflation remains moderate.

Geopolitical tensions strengthen demand for safe havens

In addition to economic factors, rising geopolitical tensions have also significantly increased the appeal of gold. The ongoing conflict between Israel and Hamas and the possible involvement of Iran have raised fears of a larger regional conflict. This uncertainty has further boosted demand for gold, which has traditionally been seen as a hedge against political and economic instability.

Market forecast: Bullish outlook for gold

The outlook for gold prices remains optimistic in the short term, supported by a weakening US dollar, expectations of an impending rate cut and ongoing geopolitical risks. Should the Fed cut rates in September and geopolitical tensions persist, gold prices could continue to reach new highs. Investors should closely monitor Powell's comments at Jackson Hole as they could significantly impact both gold prices and overall market sentiment.