Powell’s hawkishness does not scare the gold market as uncertainty remains

(Kitco News) – The gold market is trading near session highs as Federal Reserve Chairman Jerome Powell reiterated his stance that interest rates will have to remain high for a longer period of time, but he also held off on monetary policy through the end of the year. No new guidance was given.

Analysts have noted that there is already a lot of bad news coming into the gold market, and the Federal Reserve, nearing the end of its tightening cycle, should not provide similar headwinds for the precious metal.

At an event hosted by the Economic Club of New York on Thursday, Powell said the committee is committed to bringing inflation down to its 2% target; However, he also highlighted the growing uncertainty in the global economy.

“A range of uncertainties, both old and new, complicate our task of balancing the risks of tightening monetary policy too much with the risks of tightening too little. Doing too little could push inflation above target And ultimately monetary policy will need to continually squeeze inflation out of the economy at a higher cost to employment. Doing too much could also cause unnecessary damage to the economy. Given the uncertainties and risks, and how far we have come, the Committee Proceeding with caution,” Powell said in his prepared statement.

Analysts say that gold prices are trading at their highest level since the beginning of August, so no one can stop the market from reaching $ 2,000 an ounce. December gold futures last traded up 1% at $1,989.40 an ounce.

“Gold bulls are relieved Fed Chairman Powell’s comments at the New York Economic Club today were not considered too extreme,” said Jim Wyckoff, senior market analyst at Kitco.com.

Not only is gold approaching $2,000 an ounce, analysts say its rally is even more impressive when looking at bond yields. The yield on 10-year notes traded at 5%, its highest level since July 2007.

Analysts have noted that gold’s highly negative correlation with bond yields has broken as geopolitical uncertainty continues to rise as the world grapples with two major conflicts. As well as Russia’s war with Ukraine, many geopolitical analysts are waiting to see whether Israel’s war with Hamas will create more chaos and instability in the Middle East.

“Volatility in the region is expected to remain mostly high and this should drive gold’s trajectory towards the $2000 level,” said Edward Moya, senior market analyst at OANDA.

Additionally, Moya said gold is also benefiting as rising bond yields are removing some credit risks in the market.

“Right now, gold is the trade of choice on Wall Street, as it looks like the bond market was ready to send the US economy into recession, in which the ‘high for a long time’ will reach painfully high levels,” he said.

During the question-and-answer period at Powell’s presentation in New York, he downplayed the rise in bond yields.

He said yields were being driven by term premiums. He said the markets are seeing resilience in the economy and are revising their views. He also said that higher yields are reducing some of the pressure on the Fed to raise interest rates.

He also said it was unclear whether the rise in bond yields would be sustained.

“We will let market yields grow,” he said.

Some analysts have said gold could remain an attractive asset as concerns over the US debt continue to grow. This sentiment could drive even more investors away from the bond market, pushing yields higher. The market is growing concerned that the Federal Reserve could lose control of the yield curve, which would force them to buy bonds and expand their balance sheet.

Disclaimer: The views expressed in this article are those of the author and may not reflect his views Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is solely for informational purposes only. This is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. And the author of this article is not responsible for any loss and/or damage caused by the use of this publication.

Source: www.kitco.com