Gold Price Forecast: The XAU/USD pair's decline is moderating as the price recovers from recent lows

As analysts at TD Securities explained, Chair Powell's remarks will likely be "a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his last remarks, which has seen markets price in rate cuts immediately following the rate hiking cycle and is likely inconsistent with the Fed's inflation mandate." As market expectations for rate reduction diminish, speculative demand for precious metals should diminish more.

A chorus of Fed speakers has addressed us in the lead-up to the event. In an interview with CNN, Mary Daly, president of the Federal Reserve Bank of San Francisco, stated that it was far too early to declare victory on inflation and that a 50 basis point or 75 basis point increase would be reasonable.

Daly's bluster stirred up the dust and pushed the US dollar up 0.12% on the day to 106.78; since then, it has skyrocketed to 108.285 in Tokyo's opening hour. US bond yields continue to rise, following Europe's selloff, and the yield curve steepened. Yields on 2-year government bonds increased from 3.23% to 3.24% thru 3.29%, while yields on 10-year government bonds increased from 2.90% to 2.97%. The rising interest rates are particularly bad news for gold investors, as the yellow metal is extremely sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion.

Fed funds futures traders assign a likelihood of 55% that the Fed will raise rates by 50 basis points in September and a probability of 45% that rates will be raised by 75 basis points. According to calculations by Reuters and data from the US Commodity Futures Trading Commission published on Friday, speculators' net long positioning on the US dollar continues to expand, while net short positions on the euro increase. The value of the net long dollar position increased to $13.37 billion during the week ending August 16, according to statistics from the CFTC. Since four weeks ago, net long dollar positions have climbed for the first time.

Core PCE will be significant in data preceding the Jackson Hole Symposium. According to analysts at TD Securities, prices likely slowed significantly in July and at an even slower rate than the core CPI (0.1% vs. 0.3%).

"Shelter weights continue to be a major contributor to this disparity. The YoY rate likely decreased to 4.6% from 4.8% in June, indicating that the series has reached its apex. Separately, personal expenditure likely fell to a still robust 0.6% MoM pace after seeing an even greater 1.0% MoM increase in June.