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Gold price jumps $40 as Fed's Powell says the U.S. still 'far from full employment'

Kitco News

(Kitco News) The gold market rebounded from six-week lows as Federal Reserve Chair testified that the U.S. is still "far from full employment."

All eyes were on Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen. The duo testified before the House Committee on Financial Services on their agencies' response to the COVID-19 pandemic.

Gold saw quick double-digit gains Thursday morning as bargain hunters stepped in to buy the dip in prices, and the U.S. dollar index fell to daily lows after surging in the previous session. December Comex gold futures were last trading at $1,762.80, up 2.32% or $40 on the day.

The move higher in gold accelerated after Powell sounded slightly dovish when stating that the U.S. is "far away from full employment."

According to Powell, this gives the fed room to keep the rates low and keep accommodation in place.

"We have to balance inflation and employment. Our expectation is inflation will come down, and we won't have to have the two goals in tension," the Fed Chair noted.

At the September monetary policy meeting, Powell said the Fed could start to taper in November, which would last until the middle of next year.

When grilled on inflation, Powell also sounded unsure when the price pressures would abate.

"We do think that inflation will remain elevated until supply bottlenecks are resolved," he said. "Exactly when that will happen is not possible to say. We should see relief in the next coming months and beginning of next year."

The debt ceiling was another heated topic of discussion during the hearing. Yellen once again warned that it would be "a catastrophe" if Congress failed to raise the debt ceiling.

The U.S. Treasury Secretary also described a worrying picture if Congress waited until the last minute to raise the debt ceiling.

"As we saw in 2011 when the debt ceiling was raised at the absolute last minute, [we saw] investor and consumer confidence shaken," she said.

What would happen this time around is an increase in interest rates and a selloff in stocks. "Anyone who has a loan would see higher interest costs on their debt," Yellen noted.

The U.S. government will run out of money on October 18, and if the debt limit is not raised, the U.S. will default for the first time in its history, Yellen added. "Credit of the U.S. would be impaired, and our country will face financial crisis and an economic recession. It's necessary to avert a catastrophic event for our economy."

Yellen also continued to urge Congress to work on a bipartisan basis.

"It's important this be done on a bipartisan basis in recognition of the fact that both Republican and Democratic [administrations] have run budget deficits for most of the post-war period with only a few years serving as an exception," Yellen said.

And no hearing can end without questions about cryptocurrencies. Powell was asked to clarify his July comment stating that one of the stronger arguments for a central bank digital currency is that it could replicate the role crypto plays.

Here's Powell's full quote from July: "I think that may be the case, and I think that's one of the arguments that are offered in favor of digital currency," Powell said during a hearing before the U.S. House of Representatives Financial Services Committee. "That, in particular, you wouldn't need stablecoins, you wouldn't need cryptocurrencies if you had a digital U.S. currency - I think that's one of the stronger arguments in its favor."

This time around, Powell clarified that the Fed has "no intention to ban cryptocurrencies."

Live 24 hours gold chart [Kitco Inc.]

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