Gold shines ahead of Powell’s testimony
Watch this space as gold could turn volatile over the next few hours.
How the precious metal performs during the second half of this week may be heavily influenced by Fed Chair Jerome Powell’s testimony before Congress later on Wednesday. Gold has drawn some support from the robust US inflation numbers which have boosted the metal's appeal as an inflation hedge. The dovish tone seen in Powell’s prepared remarks for the House Financial Services Committee also instilled gold bulls with fresh inspiration this afternoon, as the dollar weakened and treasury yields slipped.
The key question is whether bulls have what it takes to secure a solid daily close above the 200-day Simple Moving Average (SMA) which can be found just above $1825. If Powell follows the script and reiterates the Fed’s ongoing mantra that the recent spike in inflation is ‘transitory’, gold bulls could be injected with enough confidence to elevate prices higher. But given how US consumer prices in June rose by the most in 13 years and the annual inflation saw its biggest jump since 2008, the Fed may find it increasingly difficult to defend its dovish monetary stance. If Powell appears hawkish and offers clues on when the central bank will begin asset tapering, this could send the dollar and treasury yields higher – ultimately punishing gold.
Away from Powell’s testimony, concerns over the Delta coronavirus variant negatively impacting the global economic recovery could provide a tailwind for gold. As global growth fears trigger risk aversion, investors may scatter from riskier assets to safe-haven destinations like gold.
Since the start of July, gold has gained 3% with prices slowly turning bullish on the daily timeframe. The solid daily close above the $1800 psychological level opened the doors to higher levels with prices trading marginally below $1825 as of writing. A solid daily close above this point is likely to encourage an incline towards $1842 which is above the 200-day SMA. Beyond $1842, the next key levels of interest can be found at $1870 and $1900.
Should $1825 prove to be a tough resistance to overcome, a decline towards $1800 could be on the cards. Weakness below this level is likely to signal a decline towards $1760.