Wednesday (April 14) sub-session, the dollar index extended the decline, is now trading around 91.75; Spot gold remained firm at around $1,746 an ounce, having previously traded near $1,750 an ounce. In the trading session, investors will focus on the speech of Federal Reserve Chairman Colin Powell, which is expected to provide important guidance on the trend of the dollar index, gold and other assets.
Gold rallied strongly on Tuesday as data showed a sharp rise in U.S. inflation, boosting the metal’s appeal as an inflation hedge and weakening the dollar.
The dollar index closed down 0.28 percent at 91.84 on Tuesday. Spot gold closed Tuesday at $1,745.52 an ounce, up $12.76, or 0.74 percent. Gold extended gains in early Asian trading on Wednesday, reaching as high as $1,749.38 an ounce.
The U.S. consumer price index (CPI) rose 2.6 percent in March from a year earlier, the highest since August 2018. Expectations are for a 2.5 percent increase, compared with a 1.7 percent increase last month. Some agencies commented that the CPI data is further evidence that inflationary pressures are building as the economy recovers and demand strengthens.
Michael Pearce, senior U.S. economist at Capital Economics in New York, said the signs of inflation and PPI inflation evident in the business surveys were also showing up in the CPI data, and while supply disruptions could push up prices, the biggest upward pressure on prices came from the services sector.
According to Economies.com, gold rallied strongly on Tuesday, breaking above $1,731.00 an ounce and closing at around $1,745.00. Gold is expected to continue its recent bullish trend, with the next target at $1,765.00 / oz. Economies.com added that it was important for gold to stay above $1,731.00 an ounce to continue the current rally.
Bob Haberkorn, senior market strategist at RJO Futures in New York, said a weaker dollar and pullback in yields were further supporting gold prices.
Phillip Streble, chief market strategist at Blue Line Futures, said gold would need a decisive break above $1,765 an ounce to trigger a new round of buying, as high as $1,800 an ounce.
Anil Panchal, an analyst at FXStreet, wrote in his latest post on Wednesday that gold fluctuated around $1,745 an ounce as Asian markets opened on Wednesday. Gold posted its biggest gain in three sessions the day before and briefly touched a new high for the week as the dollar weakened
$1,748.97 / oz.
While gold bulls were cheered by the dollar index hitting a new three-week low the previous day, Panchal said the lack of follow-on selling in the dollar index was a test of gold’s near-term upside.
Technically, the 21-dma around $1,730 / oz is expected to provide support for gold. On the other hand, the $1,748 / oz and 50-day EMA ($1,755 / oz) are expected to provide short-term resistance.
Powell delivered a powerful speech
Federal Reserve Chairman Jerome Powell is due to speak at the Economic Club of Washington at 00:00 Hong Kong time Thursday, and his comments are expected to have an important impact on the dollar index and gold prices.
Also scheduled to speak are Federal Reserve Vice Chairman Larry Clarida and regional Fed presidents Williams and Bostic.
It’s worth noting that Powell’s upbeat comments on the economy on Sunday weighed on gold prices on Monday. Investors need to beware of a repeat of Mr Powell’s falconry.
In an interview with the CBS program 60 Minutes, Fed Chairman Colin Powell said the economy would improve and that growth would provide more jobs. The comments add to the narrative that the US economy has recovered relatively quickly from the pandemic, given the impressive pace of COVID-19 vaccination.
Mr Powell said: “What we are actually seeing is an economy that appears to be at an inflection point. This is due to widespread vaccination and strong fiscal support, strong monetary policy support, “he said.
“For the first time, Powell may be sounding a bit hawkish on the economy,” notes Zerohedge, a leading financial blog.
Recent US economic data have been generally positive, with the economy adding a better-than-expected 916,000 jobs in March and some Fed officials suggesting the economy could add 1m jobs a month later this year.
Investors will be looking for Powell’s latest comments on inflation for clues on future policy after data on Tuesday showed a significant pick-up in U.S. inflation.
Despite the surge in inflation, many Fed officials expect the increase to be temporary and will not adjust policy based on short-term increases in inflation.
Mr Powell talked at a January press conference about the risk that base effects in the inflation data could lead to a brief burst of data that would put upward pressure on inflation, but he added: “In any case, we don’t think they are durable and we don’t expect price increases to be very long-lasting.”
Mr. Powell reiterated on Sunday that the Fed wants to see inflation rise above 2 percent for an extended period before officials move to raise rates. ‘The Fed wants inflation to be moderately above 2% for some time, but it doesn’t want it to be so much above 2% that it goes back to the bad inflation days of the past,’ Mr. Powell said.