Tuesday (February 23) sub-market intraday, the dollar index continues to be under pressure, has fallen below the 90 mark; Short-term spot gold once again pulled up, gold just broke through $1815 / ounce, gold continued yesterday rose more than $25 good trend. On Tuesday evening Hong Kong time, Federal Reserve Chairman Colin Powell will testify before Congress, which is the most closely watched financial event of the day for investors and is expected to drive market action.
Spot gold rallied on Monday as rising inflation expectations sparked stock market valuation concerns and prompted investors to turn to safe-haven gold, which was further supported by a weaker dollar. Spot gold settled at $1809.52 an ounce, up to $25.42, or 1.42 percent. Asian market intraday on Tuesday, spot gold continued to rise, the highest once touched $1815.30 / ounce.
According to Economies.com, gold continued to rise on Monday, approaching $1,811.00 an ounce. According to Economies.com, after hitting $1,811.00 an ounce, gold is expected to start another rally in the short to medium term.
The yield on the benchmark 10-year US Treasury note hit its highest in almost a year, increasing the opportunity cost of holding non-yielding gold. However, rising real yields and fears of inflation have made equity valuations look expensive by comparison and prompted investors to look to safe havens such as gold, which is widely seen as a hedge against inflation.
“We are seeing investment flows into gold as market participants become more concerned about rising real interest rates that could affect equity valuations,” said Daniel Ghali, commodity strategist at TD Securities.
The House Budget Committee voted 19-16 on Monday to move forward with President Joe Biden’s $1.9tn bailout bill, which will be sent to the House for a vote later this week. Progress on the fiscal stimulus package is helping to boost demand for gold.
The bill would provide more money for new vaccines and other medical devices. The bill will then be debated in the Senate, where it is expected to face greater partisan challenges and red tape.
Reuters reported that Biden and Democrats want to pass the bill as soon as possible, with Democrats using a procedural tactic known as “budget reconciliation” to push the bill through the Senate with only a simple majority, which means it can pass without any Republican support.
The $1.9 trillion U.S. economic stimulus package is widely expected to be passed by the end of the week, boosting hopes of a quick recovery but at the cost of higher inflation.
Democrats are expected to ask Mr Biden to sign the new bail-out bill on March 14th, when the latest round of federal unemployment benefits expires.
Ipek Oykardeskaya, senior analyst at Swansquote, said the opportunity cost of holding gold had also increased as inflation concerns overshadowed rising bond yields, helping the metal rebound from its recent decline.
Mr Oykardeskaya added that there was a growing belief that gold would soon be needed as the ultimate hedge against inflation, so it was worth paying a bit more now to have “solid insurance”.
“The market is playing with the inflation story and gold is rising to hedge against inflation,” says Peter Fertig, an analyst at Quantitative Commodities Research. He added that the future of gold now depended on the rate at which inflation rises.
Marc Chandler, managing director at Bannockburn Global Forex in New York, said a break above $1,820 an ounce would begin to repair the technical tone.
Peter Hug, director of global trading at Kitco Metals, said gold needed to break above $1,825 an ounce before returning to its upward trend of $1,900.
Powell testifies before Congress
At 23:00 Hong Kong time on Tuesday, Fed Chairman Colin Powell will testify before the Senate Banking Committee and give testimony on the semi-annual monetary policy report. He is expected to remain dovish, reaffirm his commitment to supporting the recovery and renew his call for more aid from Congress.
On January 27, the Federal Open Market Committee (FOMC) said after a two-day policy meeting that it would keep its benchmark short-term borrowing rate near zero and maintain its asset purchase program, in which the Federal Reserve buys at least $120 billion a month, as expected.
“The pace of recovery in economic activity and employment has slowed in recent months, with weakness concentrated in sectors most affected by the outbreak,” the FOMC wrote in its post-meeting statement. The statement reiterated that the new pandemic “is causing enormous human and economic hardship in the United States and around the world.”
At a news conference after the Fed’s Jan. 27 meeting, Powell said the central bank would maintain its accommodative monetary policy until its dual goals were achieved. The logical scenario for the Fed would be a high level of easing.
Mr Powell said on January 27 that anchoring inflation expectations was important and that the US economy was likely to be “some time” away from making substantial progress. He also said it was not the time to discuss a date for scaling back asset purchases.
In recent public appearances, Powell has reiterated that the Fed will maintain an accommodative monetary policy stance to support the economy’s recovery from a new pandemic.
Bank of America economist Michelle Meyer said in a report Friday that Powell is likely to take note of recent data developments, but will defend loose monetary policy by reiterating that the recovery is far from complete.
In his testimony before Congress, Powell is also likely to renew his call for more financial support from Congress to expand the support provided by Fed policy.
If Powell’s congressional testimony takes a dovish tone, the dollar could take a further hit, while gold could continue to rally, analysts said.
ING economists said Mr Powell’s choice of language was important because his testimony was linked to the release of the Fed’s semi-annual monetary policy report.
Commerzbank analyst Eugen Weinberg said the dollar was currently at a low level, which provided support for gold. Moreover, the real reason for gold’s long-term rise is that the likelihood of rising inflation is accelerating.
Joe Manimbo, senior market analyst at Western Union Business Solutions in New York, said weak U.S. employment has been weighing on the dollar’s gains as the data is seen as shaky and reinforces the Fed’s commitment to keep interest rates low.
The Federal Reserve is pinning its hopes on ultra-low interest rates to insulate the economy from the consequences of a new pandemic.