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Gold price sheds gains as Powell talks more aggressive tapering, wants to drop 'inflation is transitory' term

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(Kitco News) Gold fell below the $1,800 an ounce level again, shedding nearly $40 as Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen testified before the U.S. Senate Banking Committee.

The price of the yellow metal moved down when Powell spoke about a more aggressive tapering and more problematic inflation, sounding more hawkish than before.

Powell told the U.S. Senate that the U.S. central bank would be considering wrapping up tapering a few months earlier than June.

"At our next meeting, it is appropriate for us to discuss whether to wrap up our asset purchases a few months earlier," he said. "We've seen elevated inflation pressures, strong labor market data, strong spending data. Every dollar of asset purchases does increase accommodation. The U.S. economy is strong and inflationary pressures are high."

Powell also stated that at this point, it is best to drop the term "inflation is transitory," adding that the risk of more persistent inflation is higher.

"The threat of persistently higher inflation has grown. We will use our tools to make sure higher inflation will not become entrenched. We can now see higher inflation persisting through to the middle of next year," he noted.

Investors should diversify away from bonds in 2022, hold 10% in commodities, including gold - WisdomTree

What was missed about inflation was the supply problems, Powell clarified. "We didn't predict the supply-side problems. That's what we missed," he said.

In response to Powell's testimony, gold tumbled from the daily high of $1,811.40 to a low of $1,772.20, down nearly $40. At the time of writing, December Comex gold futures were trading at $1,780.50, down 0.26% on the day.

Powell also touched on the risks around the new Omicron variant, noting that it poses downside risks to employment, economic growth and inflation. "Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions," he said.

The Fed Chair also revealed that the central bank's highly anticipated discussion paper on central bank digital currency (CBDC) would be released in the coming weeks.

Yellen testified alongside Powell and stressed the debt limit issue, warning that failure to act in time would lead to a deep recession.

"In a matter of days, the majority of Americans would suffer financial pain as critical payments, like Social Security checks and military paychecks, would not reach their bank accounts, and that would likely be followed by a deep recession," she said.

Yellen highlighted December 15 as the deadline to watch. "There is uncertainty where we will be on December 15. There are scenarios where the Treasury would not have enough funds to continue to finance U.S. government operations past that date," she said.

Live 24 hours gold chart [Kitco Inc.]

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