- Gold (GC) futures prices fall after Powell’s hawkish remarks.
- ECB raised rates by 75bps.
- Yellen raised investor hopes for lower inflation.
On Thursday, gold (GC) futures closed lower as Federal Reserve Chairman Jerome Powell emphasized the bank’s commitment to bringing down inflation. He suggested that additional interest rate hikes were imminent. The move comes after the European Central Bank decided to increase interest rates by 75 basis points to rein in record inflation.
Jeff Wright, chief investment officer at Wolfpack Capital, said gold prices fell after Powell’s comments. Still, there was nothing in Powell’s remarks that was distinct or qualitatively different from his speech at the Jackson Hole economic symposium last month.
Powell stated on Thursday that the Fed wouldn’t be sidetracked by political criticism as it raises interest rates to reduce inflation during a moderated discussion at a Cato Institute monetary conference. He asserted that the Fed accepts its duty to maintain price stability, which entails long-term inflation of 2%.
“I can assure you that my colleagues and I are strongly committed to this project, and we will keep at it until the job is done,” Powell said.
The increase in gold futures’ prices also follows a rate hike by the ECB on Thursday. In addition, it stated that additional increases were probably coming due to inflation that was still “far too high” and “expected to stay above target for an extended period.”
“The dollar is likely to continue to strengthen vs euro and UK pound in particular, in the coming days,” said Wright, “and gold could dip below $1,700 easily.”
“I do not see much support or a compelling thesis to step in to buy or support gold right now,” he said.
US Treasury Secretary Yellen sparked optimism for lower inflation and President Biden’s potential decision to consider lowering some tariffs on China. Data-wise, the US Weekly Initial Jobless Claims fell to the lowest levels since May, with the most recent figures above 222K, following previously higher ISM PMIs and Goods Trade Balance.
The chart shows a drop in the initial jobless claims. This is good news for the Federal Reserve as it gives them room to raise interest rates. Recent upbeat US data supports rising rates which are bound to hurt the non-yielding gold (GC) futures.
When Fedspeak enters the blackout period, much focus will be placed on next week’s US CPI report.