Gold Futures Rally on Powell’s Speech and Geopolitical Tensions
Federal Reserve Chairman Jerome Powell’s Speech Sparks Gold Rally
Gold futures on Comex experienced a surge following Federal Reserve Chairman Jerome Powell’s address at the Economic Club of New York. This rally propelled gold prices to their highest settlement since July 31. During Powell’s speech, gold for December delivery saw a sharp increase, settling at $1,980.50 per ounce, marking a 0.6% rise.
Persistent Positive Data Needed to Lower Inflation Rate
In his speech, Powell emphasized the importance of consistent positive data to bring down the high inflation rate and reach the 2% target. He also indicated that if above-trend growth continues or labor market tension persists, further monetary policy tightening might be necessary. Brien Lundin from Gold Newsletter inferred from Powell’s comments that the Fed would likely maintain stable rates unless there is a significant increase in inflation.
Equity and Bond Bulls Rattled by Powell’s Caution
Powell’s caution against doing ‘too little’ unsettled equity and bond bulls. This concern, coupled with geopolitical uncertainties such as conflicts in Ukraine and the Middle East and strained relations with China, has fueled the demand for gold as a safe haven asset. Edmund Moy of U.S. Money Reserve attributes this increased demand to investors seeking a reliable investment amidst these uncertainties.
Gold Futures on Track for Second Consecutive Week of Gains
After three consecutive weeks of losses, gold futures are poised to record gains for the second week in a row. Lundin highlights the current trendless nature of markets with shifting correlations and points out a critical issue: an increase in interest rates and Treasury yields due to oversupply.
Increasing Treasury Paper Volume Fuels Demand for Gold
The U.S. Treasury is introducing a large volume of new paper into a market lacking its usual buyers due to an expanding deficit, Treasury rollovers, and debt-ceiling brinksmanship backlog. This situation has prompted potential buyers to seek higher returns, leading to the creation of more dollars and increased risk. Both factors favor gold as investors view it as a safer investment option.
This rewritten article provides a comprehensive overview of the gold futures rally triggered by Jerome Powell’s speech and geopolitical tensions. The rally in gold prices, driven by Powell’s cautious remarks and global uncertainties, indicates a growing demand for gold as a safe haven asset. With markets experiencing shifting correlations and an increase in interest rates and Treasury yields, gold futures are poised to record gains for the second consecutive week. The U.S. Treasury’s introduction of a substantial volume of new paper has further fueled demand for gold as potential buyers seek higher returns in a market characterized by increased risk. Overall, these factors contribute to the current upward trajectory of gold futures.
