Investors get ready! Powell’s speech comes with key US data. Gold bulls brewing a bigger outbreak!

Wednesday (February 10) in the Asian session, the dollar index continued to be under pressure, is now trading around 90.40; Spot gold continued to rally, with the price of bullion breaking through $1,840 an ounce and now trading around $1,843 an ounce. This trading day, investors will get a speech from Federal Reserve Chairman Colin Powell and key U.S. inflation data, both of which are expected to cause market volatility. Analysts said gold could rise further if Mr Powell makes dovish comments or if US CPI rises more than expected.

A weaker dollar and hopes for more U.S. fiscal stimulus have boosted gold’s appeal to investors seeking a hedge against inflation. Spot gold rose Tuesday. Gold settled at $1,838.17 an ounce, up $7.51, or 0.41%, after touching $1,848.51, its highest since Feb. 2.

U.S. lawmakers have prepared a budget outline to help push President Joe Biden’s $1.9 trillion coronavirus relief plan through without Republican support, which could be passed by March 15. Gold is seen as a hedge against inflation and currency devaluation that could result from broad stimulus measures.

“The reflation trade is really starting to come into play,” said Edward Moya, senior market analyst at OANDA in New York. Gold is benefiting from renewed dollar weakness and fiscal stimulus is on investors’ radar.

Simon Harvey, senior currency market analyst at Monex Europe in London, said: “People are expecting the actual stimulus to be bigger than expected. “The Biden administration is conciliatory, which means a stimulus package that will be less timely, but a bigger package.”

According to Economies.com, gold briefly traded above $1,844.00 an ounce on Tuesday. Gold has since retreated from that level and remains a drag. “Our neutral stance remains in place until gold confirms a break above resistance at $1,844.00 / oz and support at $1,830.00 / oz to define the next move,” Economies.com said.

According to Economies.com, if gold breaks below support of $1,830.00 an ounce, that will set it on a downward path to $1,800.00 first. On the other hand, an effective resistance at $1844.00 / oz would activate the bullish scenario and push gold to the next target of $1875.00 / oz.

Focus on US inflation data

At 21:30 Hong Kong time on Wednesday, investors will get US January inflation data, which is expected to show a 0.4% increase in the seasonally adjusted consumer price index (CPI). But the core CPI is expected to remain below 2%.

The U.S. consumer price index is expected to have risen 1.5 percent on a seasonally adjusted annual basis in January, the survey showed, up from 1.4 percent the previous month. The U.S. core consumer price index is expected to have risen 1.5 percent on a seasonally adjusted annual basis in January after rising 1.6 percent the previous month.

“Inflation has become an important part of the market discussion, especially with commodity prices rising and interest rates rising,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Biden’s $1.9 trillion stimulus plan was fast-tracked Wednesday when the U.S. Senate voted 51-50 to approve his budget blueprint for epidemic relief. The Washington Post said it was Biden’s strongest signal yet that he will press ahead with the $1.9 trillion economic stimulus package even without Republican support.

“Renewed optimism about the U.S. stimulus package and rising inflation expectations have contributed to gold’s strength,” said Lukman Otunuga, senior research analyst at FXTM in New York.

On Sunday, U.S. Treasury Secretary Janet Yellen said the U.S. labor market is stagnating. The United States will return to full employment next year if Congress approves a $1.9 trillion economic stimulus package.

“Yellen’s talk of full employment by 2022, coupled with the $2tn stimulus package, has pushed up the likelihood of a surge in inflation, which is positive for gold,” said Tai Wong, head of basic and precious metals derivatives trading at BMO.

Howie Lee, an analyst at OCBC Bank, said gold could rise to $1,900 / oz by late 2021 as the focus shifts to inflation expectations at this stage of relatively high US Treasury yields.

Michael Hewson, chief market analyst at CMC Markets UK, said: “Inflation expectations are rising and the dollar is starting to edge lower after the recent series of gains.”

Darin Newsom, president of Darin Newsom Analysis, said while gold remains weak in the medium term, precious metals could still see a rally this week as the U.S. dollar appears to have peaked in the near term.

Kevin Grady, president of Phoenix Futures and Options, said more stimulus would likely mean more dollar weakness and more support for gold.

Powell’s speech came

At 03:00 Hong Kong time on Thursday, Fed Chairman Colin Powell will speak at an online event hosted by the Economic Club of New York.

Analysts said any discussion of the economic outlook and monetary policy by Powell is expected to move markets, and investors can look for more information on the shrinking balance sheet and prospects for economic recovery.

On January 27, the Federal Reserve 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 Fed 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 Federal Open Market Committee 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 January 27 meeting, Powell said the Fed 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.

Powell noted the importance of anchoring inflation expectations and said the U.S. economy may still 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.

If Powell sends a dovish signal in his latest speech, the dollar could come under further pressure, while gold could continue to rally.

The new U.S. fiscal stimulus package is expected to boost inflation, while the Federal Reserve has kept interest rates low, according to ING.

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