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Gold rises as Fed's Powell downplays inflation threat in Congressional testimony

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(Kitco News) - Gold is catching a bid as Federal Reserve Chair Jerome Powell downplays the growing inflation threat and tells Congress that the central bank will continue to take a cautious approach to monetary policy.

Released ahead of his testimony before the U.S. House of Representatives Committee on Financial Services, Powell said in his opening statement that while inflation is expected to rise through the summer, he continues to expect the threat will prove to be temporary.

"Inflation has increased notably and will likely remain elevated in coming months before moderating. Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind," he said.

Although the central bank has started talking about potentially tightening interest rates and reducing its monthly bond purchase program, Powell said that conditions to trigger a policy shift "is still a ways off."

Powell added that although discussion about tapering will continue through the summer, markets will be given advance notice before implementing changes.

"We continue to expect that it will be appropriate to maintain the current target range for the federal funds rate until labor market conditions have reached levels consistent with the Committee's assessment of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time," he said.

According to some market analysts, gold is seeing some renewed buying interest as Powell's comments appear to have a dovish tilt to them. August gold futures last traded at $1,829.50 an ounce, up 1% on the day.

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