Gold: Best Day in 3 Months as Dovish Powell Rides to the Rescue

By Barani Krishnan

Investing.com - Gold clinched its best day in nearly three months on Thursday as a Federal Reserve standing resolute against any immediate talk of stimulus tapering or rate hike sent a horde of buyers toward the yellow metal.

The dollar's tumble for a fourth straight day to a 4-week low of 91.86 also boosted gold which always moves opposite to the U.S. currency.

Front-month gold futures on New York’s Comex settled up $31.20, or 1.7%, at $1,835.80 an ounce, snapping two previous weeks of anemic price action that made the proverbial watching of paint dry more fun.

Thursday’s breakout came after Fed Chair Jerome Powell said a day earlier the central bank wasn’t ready to raise U.S. interest rates as it was still focused on buying assets to support an economy recovering from the coronavirus pandemic.

Powell also refused to go anywhere near talk on when the Fed might consider tapering the combined $120 billion it was plonking each month into Treasury bonds and agency mortgage‑backed securities. His mantra: It isn’t time yet to discuss such things.

Getting toward the Fed’s twin mandates of maximum employment for Americans and sustainable inflation are the goals, he reasoned.

“The Fed won’t be changing its game plan anytime soon and that should provide a short-term bullish environment for bullion,” said Ed Moya, analyst at New York’s OANDA. “Gold will now be able to stomach progress on taper conditions and even a slow steepening of the Treasury curve.”

“A wrath of US economic data has painted a picture of a prolonged economic recovery that will likely be accompanied with a Fed that will not be abandoning its ultra-accommodative policies anytime soon,” added Moya. 

U.S. jobless claims stood at 400,000 and above for a second week in a row, according to Labor Department data on Thursday that suggested a continued challenge for the fragile labor market recovery amid the coronavirus pandemic.

The core Personal Consumer Expenditure Index,  the Fed’s preferred gauge for inflation — rose by a multiyear high of 3.4 percent in the 12 months to May when stripped of volatile food and energy prices.

“Rising monetary policy uncertainty, inflation and increasing risk of equity market volatility should favor demand for safe-haven assets” that include gold, ANZ Research said.

All of Wall Street’s three key stock indexes  — the Dow, S&P 500 and Nasdaq — rallied Thursday in response to Powell’s assurance of more stimulus for the economy. But the gains also came on the back of greater intraday swings.

Since January, gold has been on a tough ride that began in August last year — when it came off record highs above $2,000 and meandered for a few months before stumbling into a systemic decay from November, when the first breakthroughs in COVID-19 vaccine efficiencies were announced. At one point, gold raked a near 11-month bottom at under $1,674.

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After appearing to break that dark spell with a bounce back to $1,905 in May, gold saw a new round of short-selling that took it back and forth between $1,700 and $1,800.

“If gold can clear the $1850 resistance level, technical buying could support a strong rally back towards $1900,” Moya said.