Powell Sounds Dovish, But Is He Dovish Enough For Gold?

Although dovish, Powell downplayed the bond yield rally. The Fed’s more tolerant stance on inflation is good for gold, but the metal may continue its bearish trend in the short-term.

In the last edition of the Fundamental Gold Report, I analyzed the latest FOMC statement on monetary policy and economic projections. Today, I would like to focus more on Powell’s press conference. My reading is that the Fed Chair sounded like a dove. First of all, he emphasized several times that the jump in inflation this year will be only transient, resulting from the base effects and rebound in spending as the economy continues to reopen. And Powell explicitly stated that the US central bank will not react to this rise in consumer prices (emphasis added):

Over the next few months, 12-month measures of inflation will move up as the very low readings from March and April of last year fall out of the calculation. Beyond these base effects, we could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term. However, these one-time increases in prices are likely to have only transient effects on inflation (…) I would note that a transitory rise in inflation above 2 percent, as seems likely to occur this year, would not meet this standard [i.e., the Fed’s goals of maximum employment and stable prices].

Second, Powell also pointed out that we are still far, far away from reaching the Fed’s employment and inflation goals. So, investors shouldn’t expect any hikes in the interest rates or any taper tantrum anytime soon. He was very clear on that, saying that it’s not yet time to start talking about tapering and that the Fed will announce well in advance any decision to taper its quantitative easing program. Indeed, in a response to the question “is it time to start talking about talking about tapering yet”, he said:

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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 it ...

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