CARSTEN MENKE, Head of Next Generation Research, Julius Baer
Even though the central bankers’ famous symposium in Jackson Hole lifted gold and silver prices on Friday last week, there should be no major fundamental impact on the markets. The key question remains whether the economy continues to recover or whether it slips back into recession. We remain very much convinced about the former and thus expect a further fading of safe-haven demand, leading gold and silver prices somewhat lower despite a weaker US dollar.
The central bankers’ famous annual symposium in Jackson Hole, which was held virtually this year, was the sole focus point for financial markets towards the end of last week. It has become famous because in the past it used to provide important clues for monetary policy – even only a few months after the event.
Gold and silver showed signs of a relief following a speech by US Federal Reserve Chairman Powell, signalling that monetary policy is set to remain expansionary for the time being. In reaction to the speech, prices rose as much as 2% and 3.3%, respectively.
From our point of view, this reaction is very much sentiment-driven, as there should be no major real fundamental impact on the gold and silver markets. The key question for gold and silver remains whether the economy will continue to recover from the corona crisis – partly aided by expansionary monetary policy – and whether inflation will turn out to be temporary, or whether the economy will face renewed setbacks, potentially slipping into recession, and whether inflation will turn out to be lasting.
Everything else, such as the debate about earlier or later interest-rate hikes by the Federal Reserve primarily affect the market sentiment, causing short-term price swings instead of providing a medium- to long-term guidance for the market. We remain very much convinced about a continued economic recovery and a temporary inflation spike, causing a further fading of safe-haven demand for gold and silver and leading prices somewhat lower. While the expected weakness of the US dollar should provide some support to prices, it should not be sufficient to offset the fading of safe-haven demand.