Metals Stocks: Gold heads for highest finish in nearly a month as Powell says inflation will moderate

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Gold futures headed toward their highest finish in nearly a month on Wednesday, with prices up for a second session.

Softness in the U.S. dollar
DXY,
-0.37%

and a slight pullback in yields for government debt helped support prices for the precious metal, as investors looked to Federal Reserve Chairman Jerome Powell’s two-day congressional testimony on the state of the U.S. economy.

In prepared testimony for delivery to the House Financial Services panel at 12 p.m. Eastern, Powell once again said that he believes the sharp rise in inflation seen so far this year will moderate.

Powell did not have any surprises in his prepared remarks, and just repeated that inflation will be transitory, and that the labor market still has a long way to go to recover from the pandemic, Chintan Karnani, director of research at Insignia Consultants, told MarketWatch. “This has been said by almost all Federal Reserve speakers since April and not just by Chairman Powell.” 

Karnani said the takeaway from the comments is that “inflation has to rise even more sharply” and “jobs growth needs to be consistently higher for any early taper or slowing down of bond purchases” by the Fed. Easing of monetary stimulus measures could lead to strength in the U.S. dollar, pressuring prices for gold.

The “third quarter U.S. inflation trend and third quarter U.S. jobs growth trend will give us an idea as to when the Federal Reserve will start tapering,” said Karnani. “Data has to be taken for a quarter as a whole and not individual months.” 

The U.S. dollar weakened against that backdrop, and Treasury yields moved lower, contributing to the rise in prices of gold on Wednesday. The U.S. dollar index was down 0.4%, while the 10-year Treasury note rate
TMUBMUSD10Y,
1.356%

was also lower, yielding 1.36%.

A weaker dollar and lower yields can make precious metals, which don’t bear a coupon and are priced in dollars, more enticing to prospective buyers.

August gold
GCQ21,
+0.65%

GC00,
+0.65%

climbed $14, or 0.8%, at $1,823.90 an ounce, following a 0.2% gain on Tuesday. Prices based on the most-active contract were on track for their highest settlement since June 16, FactSet data show.

For now, “gold is acting as an inflation hedge as it tries to break past $1,832.50 key resistance” level, said Karnani. Data released Wednesday showed that the U.S. producer price index jumped 1% last month, topping the 0.6% rise forecasted by economists polled by The Wall Street Journal.

In his first of two days of Congressional testimony, Powell on Wednesday was likely to address mounting evidence of surging inflation, with headline CPI for June beating expectations, published Tuesday, rising 0.9% after a 0.6% jump in May.

Gold has enjoyed a resurgence amid questions about the economic outlook in the recovery from COVID-19, a rebound that is complicated by the spread of delta variants of the virus and growing pricing pressures that might compel the Fed to soon scale back its accommodative policies and eventually raise interest rates.

Commodity experts say that gold has particularly benefited from a struggle to see COVID restrictions removed in parts of Europe and Asia.

Australian authorities extended a lockdown in Sydney on Wednesday by at least 14 days, Reuters reported.

“Gold rose during early Wednesday trading, with its safe-haven appeal increasing as investors reacted to news that several countries in the Asia-Pacific region continue to tighten restrictions in efforts to halt rising COVID cases,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a daily note.

In other Comex metals trading Wednesday, September copper
HGU21,
-0.74%

edged down by 0.7% to $4.28 a pound. October platinum
PLV21,
+1.80%

tacked on 2.1% to $1,134.60 an ounce, but September palladium
PAU21,
-0.42%

shed 0.2% to $2,827 an ounce.

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