Ahead of The Jackson Holedown

Be ready for just about anything on Friday…

 by Craig Hemke via Sprott Money News

All eyes this week will be on Fed Chairman Powell when he addresses The Fed’s annual central banking conference in Jackson Hole, Wyoming, as whatever Powell says (or doesn’t say) about monetary policy will set the tone for the COMEX precious metals for the remainder of 2021.

First of all, this conference will go on as it did last year…which is to say “virtually”. Covid restrictions will make this year’s event an online conference only, and Powell’s appearance will be via Zoom. This point is important to note, as it may foreshadow the theme of Powell’s remarks.

And what might those remarks be, and why will they be so important in setting the tone for COMEX digital precious metals in the months ahead? Let’s go back two months or so to recall how we got here in the first place.

The notion that The Fed will eventually taper and end their current $120B/month QE program has impacted the COMEX precious metals ever since the efficacy of the Pfizer vaccine was first announced on November 9, 2020.  If we simply go back to that date, you can see the effect on the chart, where every rally and bounce has been sold and a downtrend has persisted.

Recently, the COMEX precious metals have been deleteriously impacted by a rising U.S. Dollar Index. As you can see below, the DXY has been consistently rising since June 16. And what happened on June 16? That day marked the conclusion of the June FOMC, where the idea of a QE taper rushed to the forefront and, perhaps more importantly, The Fed announced it would begin paying 0.05% on excess reserves, a move which has driven daily reverse repo volume to be well in excess of $1,000,000,000,000.

Following the June FOMC, Chairman Powell had an opportunity to revise and extend his remarks at the following FOMC meeting in late July. But he mumbled, stumbled, and bumbled his way through his press conference, leading some to believe that any taper plans may be put on hold.

However, this notion was put to rest on August 4, when Fed Vice Chairman Clarida suggested that a taper plan should be formalized in September and put into action in October. This statement by Clarida surged the DXY and crashed the COMEX metals.

In the three weeks that have followed, though, it appears that attitudes have changed. Late last Friday, Dallas Fed President Kaplan—who was the first FOMC member to press for a taper plan earlier this year—suggested that perhaps The Fed should put any taper plans on hold until the economic impact of the latest Covid mutation could be assessed. See the link below if you missed the story late last week:

Another look at that daily chart of COMEX gold reveals what appears to be a grand double bottom, too. Any move above the $1840 highs of mid-late July will certainly get the attention of every chart reader and generalist trader.

And so, suddenly, it’s as if no one can be certain of what Powell will state during his address this coming Friday. Will he express a desire to taper but an unwillingness to begin soon, or will he follow Clarida and plow full steam ahead into a bond buying slowdown? Maybe he’ll simply reiterate his position of needing to see “substantial further economic progress” before announcing any sort of new plan? We’ll know soon enough.

As stated above, whichever direction Powell goes on Friday is likely to set the tone for the remainder of 2021 in the COMEX precious metals. If the current Fed QE plans continue unaltered, the DXY will drop and the COMEX metals should move to recapture all of the losses they’ve sustained thus far in 2021. If instead Powell announces a taper plan, the selling pressure in the metals is likely to continue.

Recent price action suggests that Powell is leaning toward taper postponement. After the shock and aftermath of Clarida on August 4, the COMEX gold has regained all its losses from the August jobs report and the price smash that followed on Sunday evening, August 8. Price is not only back above $1800, it has also regained its 50-day moving average. This is certainly encouraging.

Further, just this reminder: Highly anticipated events such as Powell’s Jackson Hole speech often bring a market reaction of “buy the rumor, sell the news” or vice versa. In this case, expect the latter in the dollar index with its inverse of “sell the rumor, buy the news” in the COMEX precious metals.

And keep in mind that there is recent precedent of quick sentiment shifts and furious short-term moves on COMEX. Just last year, COMEX gold moved from $1680 to $2080 in eight weeks, while COMEX silver moved from $18 to $29 in just fourteen trading days between July 20 and August 7, 2020.

So be ready for just about anything on Friday when Chairman Powell begins his speech. In fact, the text of his speech may be released as much as an hour in advance, so the fun may begin well before his scheduled 10:00 am ET start time.

In next week’s post we’ll review what, if anything, Powell announces on Friday, and we’ll review the updated charts. Until then, look sharp and be ready for a very volatile end of the week.