Gold prices fell slightly on Tuesday as investors await testimony from Federal Reserve Chairman Jerome Powell for clues on the future path of US rate hikes. Analysts interpret the effects of developments on the market and share their forecasts.
Market focus is Powell’s statement and US employment data
Fed Chairman Jerome Powell will present his semi-annual testimony to Congress on Tuesday and Wednesday, which will be watched closely for any hints on the U.S. central bank’s tightening path. Both presentations will take place at 18.00 CEST. Powell is expected to speak in a similar tone to other Fed officials, emphasizing the need to continue raising interest rates as the central bank tries to keep inflation down.
Exinity chief market analyst Han Tan says gold’s quest to boost gains will be heavily influenced by potential policy clues from Powell’s statements this week, as well as the upcoming US payroll report. Han Tan adds that if Friday’s jobs data show significant resistance in the US labor market, it will pave the way for US rates to rise further, and zero-yield gold could loosen monthly gains so far.
“A hawkish statement by Powell could take away the bullish momentum”
Spot gold was down 0.33% at $1,840.7 at press time. U.S. gold futures fell 0.41% to $1,847. Prices slumped from the two-week high of $1,858.19 on Monday, but remains in a tight range. Craig Erlam, senior market analyst at OANDA, points out the following levels in a note:
The yellow metal broke into resistance near $1,860 this week. A hawkish Powell statement could eliminate any bullish momentum below and prices could bounce back to the lows around $1,780-1,800.
Reuters technical analyst Wang Tao says that gold could drop to $1,837 after failing to break the key resistance at $1,857.
“Gold may consolidate before Powell’s statement, but…”
cryptocoin.comLast week’s data showed a higher-than-expected drop in US durable goods 4.5% in January, the biggest drop since April 2020. Data on Monday showed new orders for goods made in the US fell in January and a decline in civil aircraft bookings. However, increases in machinery and a number of other products signaled that manufacturing could be back to normal. OCBC FX strategist Christopher Wong states that with the dollar falling, gold managed to rise. In addition, the analyst makes the following assessment:
The weaker-than-expected US data last week raises the question of whether the robust data seen in the February releases is just a one-off seasonal or statistical oddity. Gold may consolidate before Powell’s statement, but may rally when the Fed is done, as Fed tightening enters its final cycle.
A big factor in driving the gold price!
Rupert Rowling, market analyst at Kinesis Money, comments on the market:
Gold held at $1,850 earlier in the week as investors expect more clarity about the likely course of the Fed’s rate moves and how well US jobs are holding up against current cost pressures.
Rowling says two of Powell’s speeches will be a “huge factor in driving the price of gold,” given how gold is linked to the Fed’s moves. “Recent statements by Fed officials reiterated that interest rates should be increased until they reach at least 5 percent at a time when the fight against persistently high inflation is not over yet,” the analyst comments. Rowling also points out that:
In an environment of rising interest rates, gold is becoming less attractive to investors due to its lack of yield. Precious metal owners will therefore hope that Powell does not take a more hawkish stance than the committee members.
“Gold benefited from the decline in real yields and the dollar, but…”
Treasury yields were mixed on Monday after the 10-year rate briefly climbed above 4% last week. Increasing returns raise the opportunity cost of holding gold, while a stronger dollar makes commodities priced in a unit more expensive for those using other currencies. Marios Hadjikyriacos, chief investment analyst at XM, states that gold recovered “more than 2% on strength” last week.
Classically, the precious metal benefited from the decline in real yields and the US dollar. But this progress will be difficult to sustain for long in a regime where the Fed is expected to remain restrictive for longer.
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