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Chairman Powell’s Q&A and dollar weakness support gold pricing

Commentaries & Views

The Federal Reserve concluded its FOMC meeting today, which was followed by a statement and then a press conference including a question-and-answer period by Chairman Powell. Gold futures traded to an intraday low of $1761.80 before recovering and trading positive on the day. The intraday low of gold today was precisely at the 21-day exponential moving average of $1761.80. As of 4:40 PM EST gold futures basis the most active June contract is currently fixed at $1781.80 after factoring in today’s gain of $3.00 (+0.17%).

Gold prices turned positive as the chairman of the Federal Reserve began his press conference with written remarks and answered questions from reporters. Multiple reporters asked him the same question in regards to tapering the Fed’s current quantitative easing through the purchase of $120 billion per month in U.S. Treasuries and mortgage-backed securities. This was the first and last question that was asked during the press conference. Chairman Powell seemed frustrated at the same question he was asked over and over in regards to tapering the Feds monthly asset purchases. Currently, the asset balance sheet of the Federal Reserve is over $7 trillion.

His response was consistent with former statements saying that “it is not time to start talking about tapering.” When pressed for clarification or some type of timeline he responded, “we don’t have a test for lift off or tapering to do with the virus”. He also underscored that the Fed would maintain transparency and let the public know well in advance their intent to begin to taper their monthly asset purchases. To paraphrase his response, he said, we will let you know when we are beginning to think about tapering. Signaling that the Federal Reserve will give advance warning to any change in their current extremely accommodative monetary policy.

Chairman Powell made it clear that the Federal Reserve will not taper its monthly asset purchases or raise interest rates until the United States reaches maximum employment and the annual inflation rate exceeds the current Fed target of 2% for an extended period of time.

Powell’s statements coupled with dollar weakness were the key factors moving gold out of negative territory to close positive on the day. Currently, the U.S. dollar index is down approximately 29 points (-0.32%) and fixed at 90.60. The dollar has traded below its 100-day moving average now for the fourth consecutive trading day. It remains below all three major moving averages, including the 50-day, 100- and 200-day moving averages.

While gold did not have a major upside move considering today’s gains of only three dollars, in relationship to the lows of the day gold pricing moved up substantially.

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Wishing you as always, good trading,

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