Gold price accelerated to the downside following the release of Fed Chair Powell’s remarks. gold price (Yellow Metal) bottomed at $1,815.53, the lowest level in a week. It is falling almost $30 on Tuesday, the worst day in a month.
- Jerome Powell delivers hawkish bi-annual testimony in front of the US Senate.
- Fed Chair presents the Monetary Policy Report before the Q&A session with senators.
- US Dollar makes gains across the board, stock markets and Gold price suffer.
US Dollar jumps on Powell
Federal Reserve Chairman Jerome Powell mentioned in prepared remarks that strong economic data will likely lead to higher interest rates than previously thought, in order to curb inflation.
The speech was seen as hawkish by market participants. The odds of a 50 basis points rate hike jumped. According to interest-rate futures tracked by CME Group, market-implied probabilities of a 50 bps increase at the March FOMC meeting rose from nearly 30% to 50%.
US Treasury bonds
US Treasury bonds collapsed. The US 10-year yield rose from nearly 3.94% to above 4% and then pulled back; the 2-year yield hit at 4.97%, the highest level since 2008.
Gold prices extended the decline even as US yields moved off lows, affected by a stronger US Dollar and risk aversion. Silver is losing 4%, trading at $20.19, the lowest level in four months.
Interest rates are expected to peak at 5.5%
“According to the Fed Fund Futures, interest rates are expected to peak at 5.5%. Powell would have to adopt a very hawkish tone and labour market data would have to surprise significantly to the upside again for expectations to be ramped up any higher. In this scenario, Gold would come under pressure again – but otherwise, it looks as if it has completed its correction.”
“Interest rate expectations would need to fall again for prices to rise, yet neither Powell nor the labour market data are likely to send out any such signals.”
Market reaction
The US Dollar rally continues during Powell’s testimony with the US Dollar Index rising nearly 1% on the day at 105.30.
Gold soars and turns positive for the week above as US yields plunge
Gold price (XAU/USD) jumped to $1,867 on Friday, reaching the highest level in three weeks. Data from the US showed employers added 311K jobs in February surpassing expectations; but an increase in the Unemployment Rate and slow wage growth. US yields slumped, fueling yellow metal’s upside.