• Gold is bounded by daily support and resistance ahead of the Jackson Hole event.
  • Inflation will the theme again this week as the Fed Chair delivers insights to the road ahead.
  • The market has started to liquidate longs, by then again, the positioning data is old news by now.

Speculators were quick to buy the dip in gold following the sharp pullback last week and we have seen the price stabilise to form a critical support structure.

However, positioning data suggest that specs rushed to cover their shorts rather than seek to buy in at a discount.

We have seen a marginal liquidation of speculative longs which could contribute to a deeper in precious metals, however, the data is collected form the week prior to the release and thus isn't representative of today nor tomorrow.

There is plenty of room for a bullish case from a fundamental point of view and this week could be the one that underpins the inflation hedge. 

Federal Reserve Chair Powell's highly anticipated keynote address on Thursday at the virtual Jackson Hole symposium should effectively pre-announce the outcome of the Monetary Policy Framework Review, which suggests the formal adoption of average inflation targeting.

Analysts at TD Securities offered their insights in the implications for the gold market:

The average inflation targeting framework represents a massive shift in the macroeconomic template that should continue to support inflation-hedge assets.

As financial repression continues to suppress real rates, we expect that capital will seek shelter in precious metals — which suggests further weakness in the complex represents a buying opportunity.

Trend followers remain well positioned to profit from further increases in the complex, and we don't anticipate any liquidations as the required threshold remains large considering given extreme upside momentum.

Meanwhile, the price is bounded by daily support and resistance as follows:

From a weekly perspective, the price has already met a 38.2% Fibonacci retracement level:

Bullish case

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