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 optimistic about what the first quarter may bring for the precious metal, according to Chris Weston, Pepperstone’s head of research. We have prepared Chris Weston’s assessments and forecasts of Fed Chairman Jerome Powell’s speech on the markets for readers of Cryptokoin.com .
“A modest drop in US real interest rates is a green light for gold bulls”
Gold as Jerome Powell testifies before the US Senate Committee on Banking, Housing and Urban Affairs climbed to new daily highs. 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 glimpse 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 back the market price around expected Fed rate hikes, we’ve certainly seen some relief in the markets. When it comes to dealing with price pressures, it feels like it justifies the idea that the Fed is giving them maximum flexibility and optionality to deal with changing amics, 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 boosted commodity transactions, especially where crude oil has risen and now hits its November high of $86, and feeds a full cycle for petrocurrencies to solid movement:
A modest drop in US real interest rates during the weakness of the US dollar is usually a green light for gold bulls and raises the yellow metal. 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 a lot of false starts this winter, but Weston is seeing some positive signs this time:
I’m really impressed with the yellow metal that has managed to get over the recent spike in bond yields and it’s a sign that the gold bulls could have a better time in Q1. It could be telling a story.
What was at the forefront of Fed Chairman Jerome Powell’s speech?
At the time of his testimony, Jerome Powell was optimistic about the United States and employment, while promising to contain inflation. Accordingly, the Fed Chairman said, “This year, we see a rapid recovery in the labor market and inflation well above 2%. This tells us that nin no longer needs or wants the highly aligned policies we have in place to deal with the pandemic. But there is a long road to normalcy,” he said.
But Jerome Powell also warned that a recession is possible if the Fed is forced to tighten too much, adding, “If inflation becomes too persistent, this will lead to much tighter monetary policy. and that could lead to a recession,” he added. 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, continuing with the following statements:
The committee did not make any decision on timing. We need to be humble about this. There are risks on both sides to growth and potentially inflation. We’re going to have to pay attention to what’s going on in the world 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, “This time we will have the ability to act sooner and a little faster. More nedollarsik about it will come soon. We will discuss this at the January meeting,” he said.