There is optimism in the gold space after Federal Reserve Chairman Jerome Powell’s candidacy statement triggered a price rally, according to Pepperstone. The key level to watch now is $1,830, and gold bulls are now hopeful about what the first quarter may bring for the precious metal, according to Chris Weston, Pepperstone’s head of research. Chris Weston’s evaluations and forecasts regarding the reflections of Fed Chairman Jerome Powell’s speech on the markets. Cryptocoin. com we have prepared for its readers.
“A reasonable drop in US real rates is a green light for gold bulls”
Gold climbed to new daily highs as Jerome Powell testified before the US Senate Committee on Banking, Housing and Urban Affairs. Comex gold futures for February were trading at $1,821.20, up 1.25% on the day. While Jerome Powell looks hawkish as before, he got a sense of how resilient the Fed has been as markets tightened forward monetary policy. Chris Weston, Pepperstone’s head of research, comments:
While Jerome Powell hasn’t really pushed prices back around anticipated Fed rate hikes, we’ve certainly seen some relief in the markets. When it comes to dealing with price pressures, it feels like it confirms the idea that the Fed is giving them maximum flexibility and optionality to deal with changing dynamics, while trying to dispel the belief that they are stuck on a certain path.
Commodities, especially gold and oil, received support from Jerome Powell’s comments as the US dollar index (DXY) fell, which was a major bullish sign for the yellow metal. “The dollar has been universally sold everywhere,” says Chris Weston, noting that this has increased commodity transactions, especially where crude oil has risen and has now seen its November high of $86, feeding a full cycle for petrocurrencies to solid movements.
A modest drop in US real rates during the weakness of the US dollar is often a green light for gold bulls and will push the yellow metal higher. Here we are watching the $1,830 surge.
Wednesday’s inflation data from the US would play a key role in determining what’s next for the US dollar, with the US consumer price index rising 7% year-on-year in December, in line with market consensus estimates. The gold market has had many false starts this winter, but Weston is seeing some positive signs this time around:
I’ve been really impressed with the yellow metal that has managed to top off the recent spike in bond yields, and that may be telling a story that gold bulls could have had a better time in Q1.
What was at the forefront of Fed Chairman Jerome Powell’s speech?
At the time of his testimony, Jerome Powell was optimistic about the US economy and employment, while promising to contain inflation. In this regard, the Fed Chairman said, “This year, we see an economy where the labor market is recovering rapidly and inflation is well above 2%. This tells us that the economy no longer needs or wants the highly cohesive policies we have implemented to deal with the pandemic. But there is a long road to normalcy,” he said.
However, Jerome Powell also warned that a recession is possible if the Fed is forced to tighten too much, adding that “If inflation becomes too persistent, this will lead to much tighter monetary policy, which could lead to a recession.” When talking about policy normalization, Jerome Powell stressed the importance of staying humble. “We will end asset purchases in March. We will raise interest rates. And at some point this year, we will start the second round of the balance sheet,” said the Fed Chairman and continued with the following statements:
The committee did not make any decision on the timing. We need to be humble about this. There are risks on both sides to growth and potentially inflation. We will have to pay attention to what is going on in the economy and be willing to adapt throughout the year.
Finally, Jerome Powell stated that shrinking the Fed’s balance sheet may be earlier and faster this time, while “This time we will have the ability to act sooner and a little faster. More clarity on this will come soon. We will discuss this at the January meeting,” he said.
