Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Powell Sends Smile To Gold

By Sunshine Profits (Arkadiusz Sieron)Market OverviewJan 14, 2022 11:14AM ET
www.investing.com/analysis/powell-sends--smile-to-gold-200614796
Powell Sends Smile To Gold
By Sunshine Profits (Arkadiusz Sieron)   |  Jan 14, 2022 11:14AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Fed Chair Jerome Powell testified before the Senate. He didn’t say anything new, but gold rallied a bit.

“We have totally screwed up inflation and now we are in deep trouble,” admitted Powell during his appearance before the Senate. OK, he didn’t formulate it exactly that way, but it was the message of his testimony. Powell admitted that the Fed wrongly expected a faster easing of supply disruptions and thought that price pressures would be much lower by now. As a consequence, inflation was believed to be only ‘transitory’. Unfortunately, that’s not what happened.

“The supply-side constraints have been very durable. We are not seeing the kind of progress that all forecasters thought we’d be seeing by now. We did foresee a strong spike in demand. We didn’t know it would be so focused on goods,” said Powell.

As a result of the Fed’s inaction, inflation has risen 7% in 2021, the fastest pace since February 1982, as the chart below shows. After conducting very complicated calculations, Powell admitted that “inflation is running very far above target.” Bold deduction, Sherlock!

CPI And Core CPI.
CPI And Core CPI.

Such high inflation is indeed a troublesome and even central bankers realize that. This is why Powell stated that “the economy no longer needs or wants the very accommodative policies we have had in place,” and that “we will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

However, there is a problem here. The main tool the Fed has to fight inflation is raising the federal funds rate, but hiking interest rates may hamper economic expansion and even trigger the next financial crisis. As Powell admitted, “if inflation does become too persistent, that will lead to much tighter monetary policy and that could lead to a recession.” Thus, the central bank is between a rock and a hard place, between high inflation and the risk of slowing economic expansion or even of an economic crisis.

Implications For Gold

What does Powell’s testimony imply for the gold market? Well, theoretically not much, as it didn’t include any major surprises. However, Powell sounded quite hawkish. For example, he downplayed the economic consequences of the current surge in coronavirus cases, and said that it’s likely not changing the Fed’s plans to tighten its monetary policy this year. These plans are relatively bold for this year: “We are going to end asset purchases in March. We will raise rates. And at some point this year will let the balance sheet runoff,” Powell said.

However, it seems that Powell sounded less hawkish than investors were afraid of. Given such worries, the lack of any surprises could be dovish. This is at least what gold’s performance suggests. As the chart below shows, Powell’s testimony triggered a small rally and revived optimism in the gold market.

Gold Prices.
Gold Prices.

That’s for sure encouraging. After all, gold jumped above a key level of $1,800, catching some breath, but it’s too early to call a major reversal in the gold market. The yellow metal would have to sustain itself above $1,820 and then surpass $1,850, or even higher levels, to trumpet a bullish breakout.

There are still several headwinds for gold. First of all, the monetary hawks haven’t struck yet. They are growing in strength, as several regional bank presidents have recently called for a rate hike as soon as in March. Such calls may strengthen the expectations of rate increases, boosting bond yields, and creating downward pressure for gold prices. We’ll find out soon whether it will happen or not, as the January FOMC meeting is in two weeks, and it could be a groundbreaking event in the gold market.

Powell Sends Smile To Gold
 

Related Articles

Powell Sends Smile To Gold

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
Waqar Asghar
Waqar Asghar Jan 16, 2022 1:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good and meaningful analysis. Very helpful
George Jetson
George Jetson Jan 15, 2022 10:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
take it easy, peter Schiff
Shane Zhang
Shane Zhang Jan 15, 2022 10:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The recent surge in covid may cause fed to change their mone
New Jazenevd
New Jazenevd Jan 15, 2022 10:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
“Covid surge” story has detached from reality and the market sees it much better than mass media.  One can check oil price to see the real story.
Shane Zhang
Shane Zhang Jan 15, 2022 10:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
New Jazenevd  Basically massive debt will cause USD to crash matter of time.  Sunshine has been bear on gold since 2015 and they keep double down their forecast.  Well imagine someone let them manage your money, you will become broke for sure!!!!!
New Jazenevd
New Jazenevd Jan 15, 2022 10:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Shane Zhang  I don’t know what “sunshine” is. Talking about debt-dollar-crash, the dollar is measured against other currencies and all countries around the world amass debt.
Shane Zhang
Shane Zhang Jan 15, 2022 10:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
New Jazenevd  against hard asset for sure.  Maybe EUR is not good as well as JPY.
Shane Zhang
Shane Zhang Jan 15, 2022 10:26AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
New Jazenevd  sunshine is the one came up those ariticle
New Jazenevd
New Jazenevd Jan 14, 2022 7:47PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold is the worst performer among commodities. Inflation goes high and industrial miners rally a lot, gold miners rally a bit and look to give up gains ASAP.
Lars Hellman
LarsH Jan 14, 2022 2:51PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Inflation is caused by the money supply, nothing else. Unfortunately Mr. Powell doesn't know this as he has no education in economics. There is a lag of 12-24 month between injecting money and the effect on inflation. The highly massaged inflation number 7% is just the beginning of the inflation cycle. Expect it to last at least 12-24 months after QE ends. Inflation will at the earliest not come down until 2024 and run much higher before that.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email