Gold and Powell’s dovish stance

Return from From Four-Week High?

By: Ahura Chalki

Market analyst – IFC Markets

After FED chair Jerome Powell comments about the Labor market and Inflation, which repeated the exact previous words as before, USD crashed, and Gold took advantage of that. 

Yesterday’s uptrend sent the yellow metal to its 4-week high above 1,830, and today also in the Asian and European season, it could stay well above that, ahead of the US market opens. 

Market participants’ impression of Powell’s comment was so dovish, reinforcing the idea that the central bank’s “powerful support” for economic recovery will continue.

On the first day of testimony, Mr. Powell said that the Central bank’s policy would remain accommodative, as long as the labor market needs, as it is far from FED expectation. They will keep the Bond Purchasing plan as long as “substantial further progress” in the Job market will be achieved, with Intrest Rates close to their current level, around zero by 2023. Today, he will continue his testimony. 

On the other hand, yesterday, BoC and RBNZ both had a clear Hawkish statement with cutting the asset purchasing plan. 

Giving the worrying economic data, especially with higher than expected CPI and PPI in the US, many investors can not buy the FED arguments. To remember:

“The beige book says that Supply disruptions are widespread, which means that higher Inflation is there to stay, the same signal that the Producer Price index gives. US PPI and Core PPI at 1% increased by the most in 13 years in June. While we had these data before Mr. Powell’sPowell’s speech, again, he repeated his earlier comments that higher Inflation would be short-lived and even can grow a bit more before decreasing.”

On the other hand, today’s published data from UK and China both telling us that economic recovery is not going forward as well as was expected, which means higher risk in the market. Better economic growth implies that FED has to go after the Hawkish policy, results will be less support from the stock market, money moves to the Gold market, and will be waiting for the better sign to re-enter the Stock market. Weaker than expected economic growth will hold the current ultra dovish policies, which means weaker USD, lifting the XAUUSD bulls. So it seems like Gold is ready to go forward in both market sentiments and keep its gains. 

Technically, the 50 DMA, the 38.2% of its Fibonacci (1,813) from the latest fall, strongly supports market bulls. However, the downtrend can confirm only under 23.6% of its Fibonacci, sitting at 1.790

Gold market


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