US President Joe Biden has nominated Federal Reserve Chairman Jerome Powell for a second term and Lael Brainard as Vice Chairman of the Board of Governors to replace Richard Clarida. Gold prices slid back to their lowest level in more than two weeks on Tuesday as the dollar rallied on bets on faster rate hikes.
Stephen Innes: Gold price drop, a “knee-jerk” reaction against the dollar
At the time of writing, spot gold price dropped to $1,793.8, its lowest level since November 5, while U.S. gold futures were trading at $1,796.2, down 0.56% daily. The dollar index (DXY), the dollar’s value against six major currencies, hit a 16-month top Monday after Jerome Powell was nominated as Fed chief, raising the cost of bullion for buyers holding other currencies.
Stephen Innes, managing partner at SPI Asset Management, says the gold price drop is more of a “knee-jerk” response to the dollar, and comments on the Fed nominations:
There will be no sudden falconry due to the nomination. But the continuation of the current policy continues with a faster taping tabled by the authorities last week.
Harshal Barot, good defense of $1,780 on the downsidesays he should hang
As you know from news, a stronger dollar makes bullion more expensive for offshore buyers, while higher interest rates translate into the increased opportunity cost of holding unyielding gold. Harshal Barot, senior research consultant at Metals Focus South Asia, provides the following analysis for gold on the technical side:
On the downside, $1,780 should be well defended and on the upside, $1,830-1 for continued bullish momentum. We need to see a sustainable close above $850.
Meanwhile, investors are also keeping an eye on the increasing cases of Covid-19, which is causing restrictions in parts of Europe. Stephen Innes states that the FOMC’s final makeover with three nominations still pending may also affect the trajectory of gold.
The resurgence of Covid-19 in Europe may cause central banks to back off from interest rate hike expectations, and there is still some need for gold in this kind of environment.