Gold bullish over U.S Federal Reserve Chairman’s stance

Gold started the London session today bullish, as U.S. Federal Reserve Chair, Jerome Powell signalled the central bank’s “powerful support” for economic recovery.

Gold futures is up 0.46%, trading at $1,833.45 an ounce, remaining above the $1,800 mark. The dollar index, which usually moves inversely to Gold is currently down 0.11%, currently trading at 92.203 basis points as of the time of writing this report.

During the first day of the two-day testimony before the House of Representatives Financial Services Committee, the Chairman of the Federal Reserve of the United States, Jerome Powell stated that monetary policy would remain accommodative. While insisting inflationary pressures were temporary, he added that the Federal Reserve expects to continue its bond-buying until there is “substantial further progress” in the job market, predicting that interest rates will likely remain near zero until at least 2023. Jerome Powell’s second day of testimony will take place later in the day.

In other news shaping the market, the Bank of Korea kept its interest rate unchanged at 0.5% as it handed down its policy decision during the Asian trading session. The Bank of Japan will wrap the week up by handing down its decision on Friday.

Also, investors digest data released earlier in the day in China that revealed a slowdown in the country’s economic recovery from COVID-19. The second-quarter GDP grew 7.9% year-on-year while growing 1.3% quarter-on-quarter. The data also said industrial production grew 8.3% year-on-year in June and that the unemployment rate was unchanged at 5%.

What they are saying

ANZ analyst Daniel Hynes told Reuters that the rising inflation is going to keep investors on edge but they are becoming more comfortable about the Fed’s stance and will continue to build positions in the market. He also added, “The conditions are relatively supportive of further gains in gold… It’s not going to be a sprint but a very gentle, gradual trend higher for 2021 at the moment.”

What this means

For Gold traders and investors, Federal Reserve is likely to continue their current mandate of letting inflation continue to increase at a record pace until they see substantial progress towards full employment. With the inflation rate already at record highs similar to those seen in 2008, if they do not act fast enough to raise rates in attempts to reduce the speed of the inflation growth, we could see record levels of inflation rate in the U.S. This is bullish for Gold investors as Gold is a safe-haven asset meant to be a hedge against inflation.

In other precious metals, platinum is up 1.36%, currently trading at $1,143.69 an ounce after hitting its highest level since June 16 during the previous session. Palladium is down 0.58%, currently trading at $2,810 an ounce and silver is up 0.68%, currently trading at $26.45 an ounce as of the time of writing this report.


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