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Gold Prices Spike Above $1,400 As Fed's Powell Highlights Growing Economic Uncertainty

Kitco News

(Kitco News) - Gold prices have pushed back above $1,400 an ounce reacting to dovish comments from Federal Reserve Chair Jerome Powell that signals looser monetary policy.

In his testimony before the U.S. House Committee of Financial Services, Powell highlighted growing risks to the U.S. economy.

“Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened,” he said in his opening statement, which was released 90 minutes before the hearing. “Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.

Gold prices were under pressure ahead of the report and have quickly reversed those loses. August gold futures last traded at $1,408.80 an ounce, up 0.64% on the day.

Powell noted that the domestic economy had performed reasonably well during the first half of the year; however, he added that there are growing global “crosscurrents,” creating uncertainty for the rest of the year.

“Growth indicators from around the world have disappointed on net, raising concerns that weakness in the global economy will continue to affect the U.S. economy. These concerns may have contributed to the drop in business confidence in some recent surveys and may have started to show through to incoming data,” he said.

Powell also pushed back against growing criticism from the White House and President Donald Trump.

“Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on objective analysis and data. We appreciate that our independence brings with it an obligation for transparency so that you and the public can hold us accountable,” Powell said

Powell also laid some of the risks to the domestic economy at the feet of the U.S. government, in particular growing government debt.

“A number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling…” he said. “I remain concerned about the longer-term effects of high and rising federal debt, which can restrain private investment and, in turn, reduce productivity and overall economic growth. The longer-run vitality of the U.S. economy would benefit from efforts to address these issues.”

On inflation, Powell warned that there is a risk that weak consumer prices could be even more persistent than the central bank currently expects.

Although Powell was more dovish than expected, the expectation for a 50 basis-point cut by the end of the month remain low. Avery Shenfeld, senior economist at CIBC Capital Markets, said that Powell's comments did nothing to shift expectations for a July rate cut.

"The Fed Chair had a chance to disabuse markets of the notion that a July rate cut is sure thing, and he didn't take that opportunity," he said. "All told, nothing in here to warn markets against assuming a July cut is coming, and if tomorrows core CPI readings don't show a reheating, a July rate cut could be a lock."

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