Gold’s Yo-Yo Continues, Recouping Post-Powell Losses

Commodities & Futures

By Barani Krishnan – Gold’s gyrations continue with the Federal Reserve’s new approach to inflation, as the yellow metal clawed back on Friday all of the previous session’s losses and more. 

It was also a sign that logic was returning to financial markets, which had been besotted over the last fortnight with a dollar that looked almost certain to lose from the central bank’s policy shift.

The on Comex settled up $ 42.30, or 2.2%, at $ 1,974.90 per ounce, after Thursday’s drop of $ 19.90, or 1%. 

Yet, the session high — $ 1,982.85 — came in lower than Thursday’s $ 1,986.70. The latest peak was also some $ 30 short of its Aug 19 high of $ 2,015.60 and more than $ 100 away from the Aug 7 record high of $ 2,089.20. 

As of now, there’s no certainty if the swings of the past two weeks would recur, or if gold would continue rising in a more steady fashion. If anything, gold still managed to week higher — rising 1.5% — to resume its rally from June after a two-week break. For trend-followers, that was an encouraging sign to continue buying the dips in the safe-haven.

The , which reflects trades in bullion, was up $ 32.61, or 1.7%, at $ 1,962.29 by 2:30 PM ET (18:30 GMT). It peaked at $ 1,973.88 earlier. Technicals show that a hold above $ 1,970 will be crucial for spot gold to continue its ascent.

The , which pits the greenback against a basket of six currencies and serves as the alternative trade to gold, lost its crucial 93-handle on Friday, paving the way for the yellow metal’s comeback. 

The dollar’s inexplicable strength over the last two week’s had weighed on gold. The greenback took off again on Thursday as Fed Chairman Jay Powell laid out a new policy of targeting average but higher inflation to better manage U.S. economic and employment recovery in the future. 

In the hours following Powell’s speech, the financial community was hard pressed to find a logical reason for the rise in both and the dollar, at the expense of real assets like gold, which would be the principal beneficiaries of inflation.

TD Securities reiterated that the pathway to gold’s comeback was clearer after Thursday’s market madness.

“Looking past these near-term headwinds, however, we expect that the prevailing macro tailwinds will continue to suppress real rates via financial suppression, suggesting that capital will seek shelter in precious metals,” the Canadian bank-backed brokerage said. 

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