· Gold prices recouped losses to rise more than 1% on Wednesday as the dollar slid after U.S. Federal Reserve Chairman Jerome Powell fanned expectations of an interest rate cut, citing risks to the U.S. economy.
Powell said concerns about trade policy and a weak global economy “continue to weigh on the U.S. economic outlook” and the Fed intended to “act as appropriate” to sustain a decade-long expansion.
· Spot gold rose 1.2% to $1,414.60 per ounce as of 2:20 pm ET (1820 GMT), having made its way to a high of $1,417.20 an ounce. Prices had dropped to $1,389.55 earlier in the session.
U.S. gold futures settled 0.9% up at $1,412.50 per ounce.
· Federal Reserve Chairman Jerome Powell told Congress on Wednesday that he doesn’t think a return to the gold standard in the U.S. would be a good idea.
“You’ve assigned us the job of two direct, real economy objectives: maximum employment, stable prices. If you assigned us [to] stabilize the dollar price of gold, monetary policy could do that, but the other things would fluctuate, and we wouldn’t care,” Powell said from Capitol Hill. “We wouldn’t care if unemployment went up or down. That wouldn’t be our job anymore.”
“There have been plenty of times in fairly recent history where the price of gold has sent a signal that would be quite negative for either of those goals,” he said. “No other country uses it,” he added. The Fed is tasked and overseen by Congress to maximize employment and keep prices stable.
Though Powell was quick to distance himself from the Fed nomination process, his comments on the gold standard put him at odds with the writings of Judy Shelton, a current Fed nominee and advocate for monetary policy reforms.
Shelton, who was tapped last week by President Donald Trump to join the Fed’s board, has written that a return to the gold standard affords the U.S. “an opportunity to secure continued prominence in global monetary affairs.”
· “Over the past four days we had gold pulling in from a high. Powell’s comments on trade war adding uncertainties in the U.S. economy left doors open for a rate cut, giving investors an opportunity to buy gold when it was seeking a support,” said Michael Matousek, head trader at U.S. Global Investors.
Although expectations for a 50-basis-point rate cut at a Fed meeting later this month have evaporated after forecast-beating job gains were reported last week, investors still expect a 25-basis-point cut.
“But now, there is chatter in the market about a little bigger rate cut than that, which has fueled some animal spirit in the gold market,” Matousek said.
· Minutes from the Federal Reserve’s meeting in June showed that many Fed officials thought more stimulus would be needed soon if risks to the U.S. economy did not let up, and several others leaned in that direction.
· Powell’s comments also prompted the dollar index to decline as much as 0.4% against a basket of other currencies.
· “We still think there are upside risks, and dips towards $1,375 and below $1,375 are an opportunity to go long in gold,” said Suki Cooper, precious metals analyst at Standard Chartered Bank.
“The macro factors are still supportive (of gold) but the near term headwinds are likely to come from weaker physical markets and any temporary bouts of dollar strength or a bounce in yields.”
· On the trade war front, U.S. and Chinese trade officials held “constructive” talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said on Tuesday.
· Other precious metals also rose, with silver up 0.7% at $15.20 per ounce, and platinum gained 2.5% to $826 per ounce.
Palladium was 2.9% higher at $1,591.25 per ounce, having hit $1,598 earlier in the session, its highest since March 22.
· “The whole commodities market is up, but besides that Chevron Phillips Chemical made a $8 billion deal on Tuesday to develop a petrochemical plant in Qatar, which is providing boost to palladium,” Matousek said.
Palladium is used as an agent to reduce the effect of harmful emissions from petrochemical plants.
Reference: Reuters, CNBC
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