Gold retreats as Fed Chair Warsh tightens policy stance

FUNDAMENTAL OVERVIEW

Gold prices fell on Friday after Federal Reserve Chair Warsh made a hawkish address at the Jackson Hole Symposium.

The crucial remark came when he stated "I would be hard pressed to describe broad financial conditions as restrictive". Markets took this as a signal that he opposes the recent loosening in financial conditions, prompting a reversal of that easing.

This dynamic has naturally prolonged the pullbacks in the "debasement" trades, with gold now largely back to where it stood before the US Treasury announcement. The likelihood of a rate hike at the September meeting has also risen, with markets now pricing in roughly a 60% probability of an increase.

Warsh also repeated that the Fed's current focus is exclusively on inflation and noted that progress has been sluggish. Consequently, only a soft US CPI report could push the probability below 50% and prevent the Fed from raising rates at the next meeting, according to the analysis.

If the probabilities remain at or above 50%, the Fed may feel compelled to hike nonetheless, since failing to act could be interpreted as dovish and once again loosen financial conditions.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, Warsh's hawkish speech sparked a selloff as financial conditions tightened again. The next significant support level is around 4,311, where the major broken trendline also provides confluence. Should prices reach that area, buyers are expected to step in with a defined risk below support, aiming for a rally toward 4,890. Sellers, meanwhile, will seek a break lower to build bearish positions targeting 3,885 next.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4-hour chart, the price broke below the upward trendline and extended its decline as more sellers joined the breakout. Little additional insight is available from this timeframe, requiring a closer look for further detail.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1-hour chart, bearish momentum has eased somewhat, and a swing high near 4,475 may act as minor resistance. If the price rallies back to this level, sellers are expected to enter with a defined risk above resistance, targeting 4,311. Buyers, conversely, will look for a breakout to push the price toward 4,550 next. The red lines define the average daily range for today.

UPCOMING CATALYSTS

Tomorrow brings the US ISM Manufacturing PMI and US Job Openings data. Wednesday features the US ADP report. Thursday includes Fed’s Waller, US Jobless Claims, and US ISM Services PMI. Friday closes the week with the US NFP report.