Gold futures rally on Powell’s speech, geopolitical tensions

Federal Reserve Chairman Jerome Powell’s address at the Economic Club of New York on Thursday sparked a rise in on Comex, reaching their highest settlement since July 31. Amid Powell’s speech, gold for December delivery rallied sharply, settling at $1,980.50 an ounce, up by 0.6%.

Powell emphasized the need for persistent positive data to bring down the high inflation rate to the 2% target. He also indicated that continued above-trend growth or failure to ease labor market tension might necessitate further monetary policy tightening. Brien Lundin from Gold Newsletter inferred from Powell’s comments that unless there is a significant inflation increase, the Fed would likely keep rates stable.

However, Powell’s caution against doing ‘too little’ rattled equity and bond bulls. This concern, coupled with geopolitical uncertainties such as wars in Ukraine and the Middle East and strained China relations, has fueled demand for gold as a safe haven asset, according to Edmund Moy of U.S. Money Reserve.

After three consecutive weeks of losses, gold futures are on track to record gains for the second week in a row. Lundin highlighted the current trendless nature of markets with shifting correlations and pointed out a critical issue: an increase in interest rates and Treasury yields due to oversupply.

The U.S. Treasury is pushing a large volume of new paper into a market devoid of its usual buyers amidst an exploding deficit, Treasury rollovers, and debt-ceiling brinksmanship backlog. This situation has prompted potential buyers to seek higher returns, leading to more dollars being created and increased risk, both favoring gold.

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