Contrary to what most people had hoped for, the gold price momentum remains bearish. Following the Jerome Powell speech, things have not improved at all. In fact, it seems there is more confidence in the Fed than before, which is quite remarkable.
Jerome Powell Offers Hope
Not too many people expected anything positive to come out of the Jerome Powell speech. Even so, the Federal Reserve Chairman held an interesting speech. In his speech, he claims how the bank is changing its policy framework. A different type of monetary policy will be embraced. Whether it can offer less of the same and effectively make a difference, remains to be determined.
Moreover, it appears the Fed will retain its 2% annual inflation target. If possible, the goal is to achieve inflation averaging this figure over time. To do so, the US will need a strong labor market. A bit of a problematic statement, as COVID-19 won’t necessarily allow for much labor. President Trump claims the US will have a vaccine by the end of the year. Highly unlikely, but such a response was expected following what Vladimir Putin has told the world.
Overall, it appears the market’s deflationary nature is finally receding. Instead, there is now some inflation, which is perceived as a good thing. Even so, recent stimulus packages issued by the Fed will pose some big problems. What may be perceived as a positive trend right now can turn disastrous in the months to come. That can give another boost to gold and other precious metals.
Initial Gold Momentum Gets Squashed
As soon as Jerome Powell began his speech, the gold value started inching up. Everyone knew the topic of inflation would be touched upon sooner or later. This initial momentum ran out of steam quickly, however, An initial $30 gain was turned into an overall net loss. Investors weren’t impressed with the lack of fresh news in this regard.
Another report offering hope is the US jobless benefits report. The number of new applications continues to decline, indicating the US labor market may be recovering slowly. That would play into the Jerome Powell speech quite well, even if it is a temporary change in momentum. There are still over 1 million jobless claims, a figure that cannot be ignored.
Next week could prove to be far more interesting. More specifically, Jim Wyckoff expects to see more bullish market action at that time. It will be interesting to see if that is the case in the end. Gold has remained above $1,900 an ounce without any issues. Resuming the push to $2,000 will require a very different overall investor sentiment.