Gold Prices Soar On Powell’s Comments

Gold is benefiting from safe-haven flows and a dialing back of an uber hawkish Fed. Fed’s chairman, Powell, has taken out 75bps rate hike speculation in markets.

At $1,885, the gold price is rallying some 0.87% on the day, breaking out of sideways consolidation and taking on a critical daily resistance area after Federal Reserve chairman, Jerome Powell disappointed the more hawkish of the financial market’s participants.

Fed futures were initially pricing in a higher chance of a 50 basis point hike at the June meeting before Powell spoke, but the US dollar has come under strong selling pressure during the press conference. Powell stated that 75bps hikes were not on the table and that it will be 50bps at the next two meetings if the members of the board see what they expect to see.

Powell’s comments have stripped the 2-year Treasury yield down to a low of 2.614% so far, sinking the US dollar index to 102.50 from the post-Fed interest rate decision highs of 103.61. The gold price has benefited from a combination of the dialing down of 75bp hikes and safe-haven flows given the uncertainty expressed by the Fed over the Ukraine crisis.

Meanwhile, a press release has also been published with the plans for reducing the size of the balance sheet.

The FOMC intends to reduce the Fed’s securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps.

For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills.

For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.

Technically, gold has rallied into the daily resistance from an area of demand from where the price last reacted in a significant fashion leading to what would be fresh cycle highs. However, the bulls need to get above $1,900 to mark a more convincing bullish case for higher on the charts. Failure to do so could otherwise lead to a downside extension towards $1,820 in due course.