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Global Economy

What did Powell say? What did gold prices do?


Touching on the employment market as the general theme, Powell mentioned that although the latest unemployment data came surprisingly better than the expectations and the retail sales index came above expectations, the closures in the economy inflicted wounds on the employment market that were difficult to heal. Stating that the biggest help that the Fed will do by adding private corporate bonds to its bond purchase program will be to ensure that employment returns to the levels before the coronavirus epidemic, Powell stated that there is a long time before the unemployed people return to work. Adding that the low-income group and small businesses are the hardest hit, Powell stated that the coronavirus epidemic will leave permanent vulnerabilities in these two segments.

Saying that the Main Street lending program is not very beneficial because the credit flows are not reflected directly to the households, Powell invited the Congress to support the revival of the economy. He mentioned that if the coronavirus epidemic is not brought under control and the economy does not evolve towards recovery, the economic gaps that emerged during the closure process may widen further.

In the question session of the congress members, Powell was especially affected by the fact that minorities in the USA were more affected by the epidemic; how it is planned to support this segment in order to ensure the balance in this matter; It was also noteworthy that questions were asked whether packages to support employment were considered, especially for the transportation, accommodation and entertainment sectors.

During Powell’s presentation, of course, the eyes were on the value of the US dollar against other currencies, the price of ounce gold and the direction in which the US index values ​​would move. After showing resistance at the level of $1,720 an ounce of gold, it started to rise with small steps and rose to the level of $1,725 ​​after the presentation was completed. On the other hand, we saw that the Dollar Index, which had fallen below the level of 97 before the presentation, rose again above the level of 97 after the presentation, the value of the US dollar against the Euro also increased and the parity declined to the levels of 1.1255. This showed us that the inverse correlation relationship between the US dollar and ounce of gold, which was broken for a while during the epidemic period, started to work again. We have observed that an ounce of gold has fluctuated between the band of 1.680-1,746 dollars in the past 2 months.

We think there is also support at $1,704 below the $1,744 resistance level, which is also above the current level. However, even if the $1,704 level is broken to the downside and we see the continuation of the descent, we can say that the position below this level will not be permanent and it will try to break the $ 1,744 resistance again. The fact that global foreign investment banks have recently revised their year-end target prices of $1,800 to $1,900 is an indication of this situation. In fact, if we consider that even the spread of the second wave news moves an ounce of gold upwards, if the second wave really shows itself, opening a path towards the $ 1,900 levels does not seem very likely.

If we look at gram gold, we can say that the fluctuations here are higher than ounce gold. In the previous week, that is, since June 8, the difference between the value of ounce gold on June 8 and its current value was around 1.7 percent, while the difference between the two values ​​of gram gold in the same period was 3.5 percent. The fact that the dollar/TL parity also changed by 1% between June 8 and today (16.06.2020) stands out as a clear indication of how much more sensitive the gram gold investor is to the situation that an optimistic mood in the market leaves them to worry. As a result, we can say that we maintain our view that going below 380 TL for gram gold investors in the upcoming period is good opportunity levels for buying.


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