• Gold has spiked on the back of the FOMC minutes. 
• Bears, however, have moved in fading the kneee-jerk reaction. 
• The Jackson Hole symposium presents an additional avenue for the Fed to push back against the dovish narrative.

The gold price has rallied on the minutes from the Federal Reserve's July 26-27 policy meeting that, while not shedding much light on just how aggressive they expect to be, there was not an explicit message that rate hikes will be as aggressive in Sepement. For that reason alone, US futures are pricing in a higher probability of a 50 bps hike for Sep after these minutes to around a 60% chance.

The US dollar was lower as a consequence with the DXY dropping 37 points to 106.385. The 10-year yield was under pressure, dropping 0.8% to 2.888% and well off the 2.919% highs for the day. The 2-year yield dropped by nearly 1.4%. This enabled the yellow metal to recover some ground in a knee-jerk reaction. 

Key notes from the Fed minutes

• Fed minutes: All participants at July 26-27 policy meeting agreed 75-basis-point interest rate hike was appropriate.
• Some participants said the policy rate would have to reach a 'sufficiently restrictive' level to control inflation and remain there 'for some time.
• Participants 'concurred' that future rate hikes would depend on incoming information, and judged that 'at some point' it would be appropriate to slow the pace of increases.
• Participants agreed there was 'little evidence inflation pressures were subsiding and that it would take a considerable time for the situation to be resolved.
• Participants 'emphasized' that slowdown in demand would 'play an important role in reducing inflation.
• Participants noted recent readings on inflation expectations were 'consistent' with long-run expectations anchored at 2%.
• Participants said the strength of the labour market suggests economic activity is stronger than implied by weak Q2, raising the possibility of upward GDP revision.

Is this the start of the pain trade in gold?

Analysts at TD Securities explained that ''while money manager length in gold hovering near multi-year lows, we are still anticipating a capitulation event in gold driven by the unwind of a massively bloated position held by a few proprietary trading shops and family offices.''

''A small breadth of these traders is holding nearly twice their average position size, accumulated during the pandemic, which does not appear to be associated with a Fed narrative or a recessionary view. As gold prices trade towards their pandemic-era entry levels, this complacent length is increasingly at risk for capitulation.''

''The Jackson Hole symposium presents an additional avenue for the Fed to push back against the dovish narrative.''

Gold technical analysis

Gold is retracing some of the rally in the aftermath of the minutes. It has broken the trendline resistance but a retest of the neckline of the W-formation is a high probability for traders fading the rally on lower time frames such as the 5 and 1 minute charts. The neckline aligns with the 61.8% Fibonacci retracement level of the hourly spike.