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Gold prices see steep drop as President Biden nominates Powell to remain Federal Reserve Chair

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(Kitco News) - A steady-as-it-goes approach to monetary policy is creating new selling pressure for gold as President Joe Biden plans to keep Jerome Powell as head of the Federal Reserve.

The latest news from the White House puts to rest months of speculation as markets have been anxiously awaiting to see who would be the new Chair of the U.S. central bank after February.

The news has created some selling pressure in gold as the U.S. dollar rallies on the news. December gold futures last traded at $1,818.2. an ounce, down 1.80% on the day. Meanwhile, the U.S. dollar has pushed to its highest level since July 2020.

The news has pushed gold prices below initial support at $1,835. Many analysts have been watching that price area as that was the breakout level seen earlier this month that propelled prices to a 5-month high.

While gold prices have dropped below critical support, Darin Newsom, president of Darin Newsom Analysis said that he is looking for the next support at $1,802 an ounce to hold. He added that the U.S. dollar with its latest push higher is looking a “little toppy.”

Along with Powell, Fed Governor Lael Brainard was also in the running to be Chair of the Federal Reserve; some analysts said that a Brainard nomination would have been bullish for gold.

“Brainard is seen as a lot more dovish than Powell, and that would probably have hurt the U.S. dollar, which would propel gold prices higher,” said Bill Baruch, president of Blue Line Futures, in an interview with Kitco News Friday.

“With Powell remaining as chairman of the Federal Reserve, traders and investors reckon U.S. monetary policy will remain on its present course, compared to notions that Brainard as a new Fed chair would have leaned easier on U.S. money policies,” said Jim Wyckoff, senior analyst at Kitco.com

Along with Biden nominating Powell to remain as Chair of the Federal Reserve, he has also selected Brainard to be Vice-Chair of the Board of Governors, replacing Richard Clarida.

“If we want to continue to build on the economic success of this year, we need stability and independence at the Federal Reserve—and I have full confidence after their trial by fire over the last 20 months that Chair Powell and Dr. Brainard will provide the strong leadership our country needs,” Mr. Biden said in a statement on Monday.

Powell renomination comes as the Federal Reserve looks to start normalizing monetary policy. Earlier this month, the central bank started reducing its monthly bond purchases; however, Powell has said that now is not the time to raise interest rates.

Gold prices have benefited as markets see the Federal Reserve in no hurry to raise interest rates even as inflation pressure spike higher. Inflation in October saw an annual rise of 6.2%, the largest increase in 31 years.

Although Powell will create some continuity for U.S. monetary policy, some analysts note that there is still some uncertainty ahead as Biden still has three vacancies to fill.

“The statement today suggests that we can expect announcements on nominees as early as next month. It is those appointments that could generate a more marked shift in the outlook for monetary policy,” said economists at Capital Economics.

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.