Gold futures posted their highest finish in nearly a week on Tuesday, with comments from the Federal Reserve’s Jerome Powell doing little to sway expectations for higher inflation and volatility in financial markets.
Read: Powell says Fed can cool inflation without damaging labor market
At his confirmation hearing for a second four-year term as chairman, Powell said the central bank’s plans to raise interest rates should not throw a wrench in the economy or damage the job market, essentially painting a picture of a “soft landing” rather than a recession.
“As spooked as all the markets have been by the Fed’s shift to more-hawkish rhetoric, I think Powell’s testimony served as reassurance that the central bank won’t move too drastically and will keep the health of the economy as its foremost priority,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.
““…Powell’s testimony served as reassurance that the central bank won’t move too drastically and will keep the health of the economy as its foremost priority.””
February gold GCG22, +1.14% GC00, +1.14% rose $ 19.70, or 1.1%, to settle at $ 1,818.50 an ounce, with the most-active contract logging the highest settlement since Jan. 5. Gold also tallied a third consecutive settlement in positive territory — the longest string of gains since a seven-session stretch ended Nov. 12.
March silver SIH22, +1.48% SI00, +1.48% climbed 35 cents, or 1.6%, to $ 22.812 an ounce, after gaining 0.2% on Monday.
The advance for bullion prices came despite recent strength in yields for government debt and the dollar, which would usually serve as a headwind for the dollar-priced commodity that doesn’t offer a coupon.
“Despite yields on 10-year Treasury notes surpassing 1.80%, gold prices have been moving up as it is considered a hedge against inflation and investors are expecting inflation to continue rising in coming months as well,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily research report.
Bullion is viewed a hedge against inflation and has traditionally been perceived as safe-haven asset.
On Tuesday, the 10-year Treasury note TMUBMUSD10Y, 1.749% was yielding 1.755%, down slightly from 1.779% at 3 p.m. Eastern Time Monday, while the dollar was down 0.3%, little changed for the week so far, as measured by the ICE U.S. Dollar Index DXY, -0.39%.
The market is currently expecting the Fed’s first rate increase in March and may start reducing its balance sheet shortly thereafter, said Peter Grant, vice president and senior metals strategist at Zaner Metals, in a recent newsletter.
If that happens, “scope is seen for 10-year yields to test the 2% level in the near term, which should continue to provide support for the dollar and make gains in gold above $ 1,800 difficult to sustain,” he said.
This week, the market will be watching inflation data closely, said Grant. The December U.S. consumer-price index is due Wednesday and producer price data will be released Thursday.
“Inflation is likely to remain hot, but stocks are already expressing their displeasure with the Fed’s new hawkish tone,” Grant said. “That puts the Fed in a bit of a bind as they are already well behind the curve after maintaining for far too long that inflation was ‘transitory’.”
For now, “diminished risk appetite could provide some haven support for gold along with the desire to hedge those inflation risks,” said Grant.
On Tuesday, U.S. benchmark stock indexes moved higher, with the Dow Jones Industrial Average DJIA, +0.25% up 0.3% after losing nearly 0.5% on Monday.
Among other Comex metals, March copper HGH22, +1.70% added 1.8% to $ 4.429 a pound. April platinum PLJ22, +3.81% tacked on 4.2% to $ 973.20 an ounce, while March palladium PAH22, +0.25% settled at $ 1,922.10 an ounce, up 0.7%.