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Gold Prices Rise 1% Following Comments From Fed Chair Powell

Kitco News

(Kitco News) - Gold prices are holding above the critical psychological barrier at $1,200 an ounce and up more than 1% on the day as Federal Reserve Chair Jerome Powell highlights the central bank's commitment to gradually raise interest rates as the U.S. economy continue its strong performance.

In his much-anticipated remarks at the global central bank retreat at Jackson Hole Wyoming, said that the U.S. economy has "strengthen substantially" but the current pace of rate hikes is appropriate as there is not an elevated risk of overheating."

"The economy is strong. Inflation is near our 2 percent objective, and most people who want a job are finding one," he said in his speech.

Gold prices are not only trading at session highs but its highest level for the week following Powell's comments. December gold futures last traded at $1,209 an ounce, up more than 1.2% on the day.

Looking at inflation, Powell said that while it is close the central bank's target, but there is no clear sign of price pressures accelerating above 2%, which supports a gradual rise in interest rates.

Adam Button, currency strategist at Forexlive.com, said that Powell's comments have a bit of a dovish tone, despite the optimistic outlook.

"The lines on the conditions for the hikes are a bit soft, and there isn't the same kind of optimism on the economy that we heard from a few other Fed members at Jackson Hole," he said. "The market is increasingly looking towards 2019 and the path of rates then. Powell here isn't signaling a move above 'neutral' in 2019. There's a bit of a 'wait and see' tone here."

Many commodity analysts have noted that gold's four-month downtrend is an indication that markets have priced in the Federal Reserve's current trajectory for interest rate hikes. Currently, markets are pricing a more than 90% chance of a rate hike next month.

Avery Shenfeld, senior economist at CIBC World Markets, described Powell speech as “defensive” as he walks a fine line between rising interest rates as inflation pressures remain muted.

“While the Fed is on its one-hike-per-quarter path this year, should inflation stay relatively grounded, the balance of risk approach that Powell talks about could lean towards a somewhat slower pace of tightening in 2019, as rates get closer to where the Fed might see the neutral rate lying,” he said. “For the near term at least, this was a careful defense of the next two hikes that are virtually baked in for the balance of this year, but the dollar (softening a bit) and rates (the same) seem to be guided by the headline comment about the lack of overheating risks.”


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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