Gold Dips 2nd Day in Row, After Powell’s “Inflation One-Off” Remark

By Barani Krishnan

Investing.com - Does gold still react to inflation concerns?

The right answer probably is: “When it’s convenient for the market”.

Gold prices fell for a second day in a row as the Dollar Index jumped above the key 92 level after Federal Reserve Chairman Jerome Powell reiterated that any rise in U.S. inflation this year will likely be "one-off." He also said the central bank had all the tools to ensure price pressures were kept anchored to its 2% target.

Gold for April delivery settled down $13, or 0.8%, at $1,725.10 an ounce on New York’s Comex. In the previous session, it lost 0.2%.

“On most days now, there is no clarity on what’s moving gold, with all the flux over yields and the dollar,” said Philip Streible, precious metals strategist at Blueline Futures in Chicago.

“Powell’s remark today that the inflation effects will be temporary were enough to send the dollar up and gold down. But all those worries about spiking inflation in recent weeks did bunk for gold. So, does gold still respond to inflation concerns? Yes, when it’s convenient for the market.”

Testifying on the first anniversary of the historic fiscal rescue mounted for the U.S. economy from the COVID-19, Powell told the Congressional Financial Services Committee in Washington that the expected sharp jump in inflation as the economy reopens "will not be persistent".

The Fed will "continue to provide the economy the support that it needs for as long as it takes ... as sectors of the economy most adversely affected by the resurgence of the virus, and by greater social distancing, remain weak", Powell said.

Long associated with tags such as safe-haven, store of value and inflation-hedge, gold has debunked such connotations for at least six months now, plunging particularly when market hype over inflation sent Treasury yields soaring instead.

The yellow metal demonstrated the faith placed on it by investors through the height of the pandemic, rising from March 2020 lows of under $1,500 to reach a record high of nearly $2,100 in August. It has plunged since, briefly turning into a bear market to lose as much 20% to hit lows under $1,675 early this month.

While gold has crawled out of that hole, it's been stuck at under $1,750 in recent weeks, behaving more like a patient on life support than one on the clear path to recovery.

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