Fed Chair Powell Not Expected to Shock Gold Traders, but Wednesday’s Consumer Inflation Report Could

Gold futures prices are up for a third session on Tuesday, helped by a dip in Treasury yields and a slightly weaker U.S. Dollar. Short-covering ahead of Federal Reserve Chair Jerome Powell’s nomination hearing later today and position-squaring in anticipation of Wednesday’s U.S. consumer inflation report also underpinned prices.

At 13:02 GMT, February Comex gold is trading $1807.00, up $8.20 or +0.46%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $168.22, up $0.47 or +0.28%.

Powell Nomination Hearing Takes Center Stage

Federal Reserve Chair Jerome Powell pledged “to prevent higher inflation from becoming entrenched” in comments prepared for delivery at a congressional hearing on Tuesday where the high pace of price increases is likely to be a central topic, Reuters reported.

Powell did not mention the U.S. central bank’s plans to hike interest rates explicitly in brief opening remarks for his nomination hearing before the Senate Banking Committee for a second four-year term as head of the Fed.

But he noted that the strength of an ongoing recovery had pushed the supply and demand for goods and services out of line, with higher prices following.

“The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation,” Powell said in his remarks, which were released by the Fed on Monday. “We know that high inflation exacts a toll.”

US Dollar Rangebound Ahead of Powell

The U.S. Dollar hovered near the middle of its recent range against major peers on Tuesday as traders looked to incumbent Fed Chair Jerome Powell’s nomination hearing later in the day for new clues on the timing and pace of policy normalization.

The dollar was also weaker, but off its session low. This helped drive demand for the dollar-denominated asset.

Traders Prepping for Wednesday’s US Inflation Data

U.S. consumer inflation data is due to be released on Wednesday, with headline CPI seen coming in at a red-hot 7% on a year-on-year basis, boosting the case for an early increase in interest rates. Higher inflation readings might prompt the Fed to raise interest rates early.

Additionally, last month’s producer price index data will be released on Thursday.

Daily Forecast

With Powell acknowledging inflation in his prepared remarks, gold traders are now awaiting his Q & A session in Washington. Traders are hoping for more clues about the timetable for the Fed’s rate hikes. Currently, the market is pricing in the first hike for March, followed by May. The real question is whether policymakers will raise rates three or four times in 2022.

Traders seem to be accepting three rate hikes because that is what the Fed said in its December monetary policy statement. However, a couple of banks including Goldman Sachs and Chase are predicting at least four rate hikes.

Gold is going to have a hard time sustaining a long-term rally if Treasury yields continue to rise. However, we can accept a short-term bullish tone if Wednesday’s consumer inflation report shows a larger than expected surge in inflation.