Even as US data continues to show signs of rolling over, there is enough progress in the US economic recovery for the Federal Reserve to begin to move away from its pandemic emergency policy stance. The US dollar has been broadly strengthening on this pretense. However, the flip side of this is that commodity prices have been under pressure. With yesterday’s corrective move on USD and a rebound in risk appetite, commodities have bounced and now sit around key resistance levels. With commodities at a key inflection point, the Jackson Hole Economic Symposium will be key. 

  • Fed Chair Powell’s speech at Jackson Hole could prove to be a defining moment for risk assets and USD
  • A rebound across the commodities complex has seen recovery into key resistance. How commodities react to Jackson Hole will be key for medium-term outlooks

Risk assets eying Jackson Hole

With the US Flash PMIs sharply disappointing yesterday, markets took this to be USD negative and risk positive. This is because the perception was that it puts less pressure on the Federal Reserve to tighten monetary policy. However, these moves have been broadly counter to a trend of USD strengthening and higher risk commodities falling in recent weeks. 

All the talk in recent weeks has been of the timing of the Fed’s tapering of asset purchases. FOMC members are publically calling for it, whilst the FOMC minutes for the July meeting stated that a majority of participants felt “it could be appropriate to start reducing the pace of asset purchases this year”. 

So, it falls upon Fed Chair Powell to join the majority of his colleagues and start the ball rolling for reducing asset purchases by the end of this year. If he does so, then this will:

  • Underpin the US dollar for the coming months
  • See risk assets underperform

If there is a combination of the two, then we can expect most commodities will come under downside pressure. 

The key question is how gold would perform under these circumstances. Previous tapers have tended to come with USD strengthening. As we can see below, Gold and the US dollar still have a very strong negative correlation (c. -0.6). 

Gold v USD

However in the past couple of weeks, as risk appetite has fallen away, gold has held up well in the face of a strengthening USD. Perhaps this is a sign that gold will manage to hold up amid FOMC tightening?

Gold rebound at an intriguing level

So as we approach Jackson Hole, this rebound on commodities has left several of the charts intriguingly poised. 

When Gold (MT5 code: XAUUSD) fell sharply a couple of weeks ago, we were on the lookout to sell into strength. The price has proved to be more resilient than expected. However, the rebound is around the key resistance of a three-month downtrend. Moving above $1790 was a sign of intent by the bulls but they now need to hold above $1800 to sustain an improving outlook. 

Gold technical analysis

What makes this such an intriguing position on gold is that the Relative Strength Index has failed repeatedly in the high 50s in recent weeks. If gold can get through Friday’s speech by Powell, still intact above $1800 then the bulls could be OK. A failure back under $1744 would be a sell signal now.

Key inflexion points across commodities

Elsewhere, the risk rebound yesterday significantly helped what has been some struggling commodities prices. Silver, Platinum and Palladium have all rebounded off recent lows, but their moves look to merely be technical rallies as markets set up for the next sell signal. A hawkish Powell on Friday could be just that signal.

Silver (MT5 code: XAGUSD) has rebounded towards initial resistance at $23.95 which is within a historic band of resistance between $23.50/$24.00. However, there is also the falling 21 day moving average (currently $24.20) and an 11 week downtrend (overhead around $24.50). With plenty of overhead barriers to recovery, as this near term rally plays out in the next couple of days, markets could be primed for the next chance to sell.

Silver technical analysis

Palladium (MT5 code: XPDUSD) has fallen sharply in the last week and a half but is currently on the rebound. How the price reacts now in the resistance area $2445/$2500 will be the first question. The RSI is simply unwinding from oversold and this looks likely to be a move that helps to renew downside potential. Once more, reaction to Jackson Hole will be key.

Palladium technical analysis

Platinum (MT5 code: XPTUSD) has bounced off near term support at $950, however, once more we see a move that technically looks to be just unwinding within a bear trend. There is a big resistance overhead between $1020/$1050 to restrict any serious recovery. Once more, we see a hawkish Powell at Jackson Hole would likely be the next sell signal. With downside potential having been renewed a move back below $950 could easily be seen.

Platinum technical analysis


If Fed Chair Powell lays out a 2021 roadmap for tapering asset purchases then we believe that commodities will struggle. Furthermore, the sooner the timing of the taper, the more hawkish the signal. This would be even more risk negative and hit commodities even harder. 

The big caveat is that Powell does not signal at all. At that stage we would see USD falling and a big risk rally, pulling commodities sharply higher. As such, commodities are at a key inflexion point waiting for Jackson Hole.