Price of Gold Fundamental Daily Forecast – Prices Jump as Powell Calls for Patience Over Early Tapering
Gold futures erased earlier losses to close higher on Friday after Federal Reserve Chairman Jerome Powell stopped short of signaling when the U.S. central bank would start withdrawing its economic support and reiterated his view that current inflations spikes are transitory.
On Friday, December Comex gold settled at $1819.50, up $24.30 or +1.35%.
Gold traders took advantage of several factors that helped spike prices higher. The first was a favorable chart pattern. Several days of tight rangebound trading typically signals investor indecision and impending volatility. The chart pattern strongly suggested an upside bias on a sustained move over $1800.00 and a downside bias on a sustained move under $1795.00.
Two other factors giving gold a boost were a drop in Treasury yields and a weaker U.S. Dollar. Gold doesn’t pay interest or a dividend so when yields dip, investors adjust their gold positions by buying more of the precious metal.
Lower yields also made the U.S. Dollar a less-attractive asset. The weaker greenback helped drive up foreign demand for dollar-denominated gold.
The catalyst driving these key factors were comments from Federal Reserve Chair Jerome Powell. In a highly anticipated speech on Friday, the central bank chief said that the U.S. central bank could start tapering its massive support to the economy by year’s end, which was not as fast as many in the market had assumed.
Powell said there had been clear progress toward maximum employment and he believed that if the U.S. economy improved as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year.”
Powell signaled the U.S. central bank will remain patient and repeated that he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process – a defense in effect of current Fed policy.
Bullish gold traders read this to mean the central bank is not going to raise rates anytime soon and taper talk won’t come back into play until the release of the August Non-Farm Payrolls report on Friday, September 3. Then perhaps again with the consumer inflation report. All of this is leading up to the September 21-22 central bank policy meeting.
With Powell having the Delta variant as an excuse, the Fed can announce tapering in September or wait until November 2-3 or December 14-15.