Gold Continues To Rebound, Despite Hawkish Powell’s Letter

The price of gold rebounded further, despite hawkish Powell’s letter to Senator Rick Scott.

The second quarter of 2021 started much better than the first one for the gold bulls. As the chart below shows, the yellow metal rebounded from the late March bottom of $1,684 to $1,778 on Tuesday (April 20).

Is it a temporary recovery in a long, downward slide or a return to the bull market that started in 2019? Well, it’s probably too early to determine whether that’s the case. What is, however, crucial here is that the yellow metal has managed to go up, despite some bearish news. The most important fact is that Powell has replied to the letter from Senator Rick Scott on rising inflation and public debt. The Fed Chair’s reply was rather hawkish, as he said that any overshoot of inflation target would be limited:

We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period (…) we are fully committed to both legs of our dual mandate – maximum employment and stable prices (…) We understand well the lessons of the high inflation experience in the 1960s and 1970s, and the burdens that experience created for all Americans. We do not anticipate inflation pressures of that type, but we have the tools to address such pressures if they do arise.

Although Powell didn’t say anything surprising, his tone and emphasis on the commitment to stable prices could be interpreted as generally hawkish and, thus, negative for the gold prices. However, the yellow metal continued its rebound, which is encouraging.

Implications for Gold

So why has gold been rising recently? Well, in a sense, the reason might be simple: the sentiment was so negative that the downward trend had to reverse. However, there are also some fundamental factors at play here. First of all, the rallies both in the bond yields and the US dollar have stalled. As the chart below shows, both the greenback and the real interest rates have receded from their March peaks.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does ...

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