(Kitco News) - The entire world has been captivated by gold’s and silver’s surging momentum as prices hit record high after record high; however, the Federal Reserve Chair is not very impressed with the precious metals’ accomplishments.
Many analysts have attributed gold’s and silver’s unprecedented start to the new year, in part, to growing uncertainty surrounding the Federal Reserve’s political independence; however, during his monetary policy press conference, Powell dismissed those concerns.
“The argument can be made that we are losing credibility, but that simply is not the case. If you look at wherein flation expectations are, our credibility is right where it needs to be,” he said. “We don't get spun up over particular asset change prices, although we do monitor them, of course.”
Powell made the comments after the Federal Reserve decided to leave the federal funds rate in a range between 3.50% and 3.75% following its first monetary policy meeting of the year. The decision was in line with economists' expectations. According to the CME FedWatch Tool, markets don’t see the next rate cut until June.
While Powell has been fairly quick to dismiss the precious metals’ historic rally, the same can be said for the gold market, which has largely ignored Powell's comments as he walked a fairly neutral line.
He said that both upside risks to inflation and downside risks to the labor market have eased.
“We think we are well-positioned here to watch how the economy unfolds,” he said.
At the same time, Powell also kept the door open for a potential rate hike.
“It is not anybody's base case right now that the next move will be a rate hike, but ultimately we will do what we think is the right thing,” he said.
Despite the less-than-dovish stance, gold has managed to hold gains at session highs following Powell's press conference. Spot gold last traded at $5,387.70 an ounce, up nearly 4% on the day.
Although the Federal Reserve’s neutral stance poses a potential headwind for gold, many analysts don’t see it as a major roadblock.
In an interview with Kitco News, Nitesh Shah, Head of Commodities & Macroeconomic Research at WisdomTree, said that while Powell is content to keep rates unchanged for the next few months, markets are already looking beyond May, when he will be replaced.
“Chances are Powell will be replaced with someone who is expected to support rate cuts,” he said. “This is what gold is looking at.”
Powell also offered a fairly measured view on geopolitical risks, noting that despite lingering uncertainty, oil prices have remained relatively stable and the U.S. economy has weathered global trade volatility.
Analysts note that geopolitical uncertainty is another major factor behind gold’s 24.5% gain so far this month.
In an interview with Kitco News, Nitesh Shah, Head of Commodities & Macroeconomic Research at WisdomTree, said that while Powell is content to keep rates unchanged for the next few months, markets are already looking beyond May, when he will be replaced.
“Chances are Powell will be replaced with someone who is expected to support rate cuts,” he said. “This is what gold is looking at.”
