Gold hit 3-week highs on Friday, notching its best weekly gain since May, after Federal Reserve Chairman Jerome Powell failed to give a clear timetable for tapering U.S. stimulus spending at the central bank’s much-anticipated Jackson Hole monetary policy symposium.
The dollar and U.S. Treasury yields tumbled while risk assets from stocks to commodities, including oil, rocketed on the move. Gold, while labeled as a safe-haven, got a ride higher too, given its sensitivity to inflation, which typically propels the yellow metal’s prices.
“Powell hasn’t given a clear idea of when the tapering will end, leaving the market to guess-timate, and risk bulls to play it to their favor,” said Phillip Streible, precious metals strategist at Blueline Futures in Chicago.
Front-month gold on New York’s Comex settled up $24.30, or 1.4%, at $1,819.50 an ounce, after a three-week high at $1,821.55. For the week, it rose around 2%, its most since the week to mid-May.
Streible said gold could face some resistance here on. “The $1,820 is at the 200-Day Moving Average,” he said. “The next target will $1,835 to $1,840.”
Friday’s rally in gold came after Powell said the U.S. economy was on good footing but still vulnerable from risks posed by the coronavirus pandemic.
The Fed chair used his opening speech at the Jackson Hole Symposium to say that although he was recently of the view that the tapering could begin by the end of the year, a further spread of the pandemic from the Delta variant had tempered that stance.
“My view is that the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment,” he said, referring to the Fed’s twin mandates.
But Powell also hedged the central bank’s position on the taper by saying it will be “carefully assessing incoming data and the evolving risks.”
“Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions,” he added.
The Fed has been buying at least $80 billion in Treasury securities and $40 billion in agency mortgage‑backed securities each month since March 2020 to insulate the U.S. economy from the effects of the coronavirus pandemic measures. The central bank has also kept U.S. interest rates at a record low of between zero and 0.25%.
The Fed’s stimulus program is being blamed for aggravating price pressures in the United States, where economic growth for the second quarter of 2021 was estimated at 6.6% on Thursday – above the 3.5% decline noted for all of 2020. The central bank itself has projected economic growth at 6.5% for all of 2021.
The Fed’s preferred gauge for inflation – the core Personal Consumption Expenditures (PCE) Index, which excludes volatile food and energy prices – rose 3.6% in the year through July, its most since 1991. The PCE Index including energy and food rose 4.2% year-on-year.
The Fed’s own target for inflation is 2% per annum.
Aside from the Fed’s asset purchases, the Biden administration has passed $1.2 trillion in Covid-related spending since the president took office in January. Democrat lawmakers aligned to Biden this week advanced a further spending plan for $3.5 trillion to advance his economic agenda.
The question of when the Fed ought to taper its stimulus and raise interest rates has been hotly debated in recent months as economic recovery conflicted with a resurgence of the coronavirus Delta variant.
On Thursday, three regional Fed chiefs — Robert Kaplan of Dallas, James Bullard of St Louis and Esther George of Kansas City — pushed for a prompt taper, saying the U.S. economy was unlikely to be greatly impaired by Covid’s Delta variant as it was by the original strain of the virus a year ago.
On Friday, Philadelphia Fed President Patrick Harker added to their chorus, saying the Fed should taper asset purchases “sooner rather than later”. Unlike his three colleagues, Harker is also a voting member of the Fed’s policy-making FOMC, or Federal Open Market Committee. That makes his comments more influential.
Not all Fed members are in favor of a quick taper though. Raphael Bostic, who heads the Atlanta division of the Fed and is also a voting member of the FOMC, said on Friday the Delta variant could profoundly impact growth and needs to be watched closely before any withdrawal of monetary support.