Gold Price Down 2nd Straight Week as Powell Salutes US Economy

September 8, 2019

Washington (Sept 8)  Gold posted its second straight weekly loss on Friday, moving closer to the key $1,500 support, after the U.S. central-bank chief downplayed prospects of a recession in the world’s largest economy.

Spot gold, reflective of trades in bullion, traded at $1,505.91 per ounce by 2:45 PM ET (18:45 GMT), down $13.15, or 0.9%, on the day after Federal Reserve chairman Jerome Powell said the most likely case for the U.S. was a continuation of moderate growth. Bullion lost 2.2% on Thursday for its largest one-day decline in 2019.

Gold futures for December delivery settled down $10, or 0.7%, at $1,515.50 per ounce on the Comex division of the New York Mercantile Exchange. In Wednesday’s session, December gold hit a more than six-year high of $1,566.15. December gold settled down 2.2% on Thursday, its largest drop since January.

With the declines from Thursday and Friday, gold futures ended lower for a second week in a row, logging a weekly drop of 0.9%.

Scores of investors, from day-traders to hedge funds and multi-billion dollar institutions, had piled into gold in recent months, looking for a hedge against collapsing bond yields, currency and equity-market flux, sliding global rates, the Brexit scare and recession fears over the U.S.-China trade war.

Powell’s suggestion that the U.S. might be recession-proof debunked at least one pillar for gold’s support this year, though the Fed chair also kept alive hopes for another U.S. rate cut by saying the central bank was ready to “act as appropriate” to support the expansion of the U.S. economy.

"Recession is not a likely outcome for the U.S. or the global economy," Powell said as the nation’s jobs report for August came in less robust than expected.

Powell's comments came ahead of the Federal Reserve's two-day policy meeting scheduled for Sept. 17-18.

The Fed dropped 25 basis points at its last policy meeting in August and is expected to do the same in September, bringing rates to a range of between 1.75% and 2%. The Fed Rate Monitor Tool on is showing a 92% chance so far for another 25-bp cut.

If that happens, gold could regain steam for an upward trek. There’s still plenty of scope for the yellow metal to extend its rally on the potential for more dismal global news or data. Futures are up about 18% on the year while the spot price is about 16% higher.

But the opposite could also happen, with gold spiraling downward from here.

TD Securities is among those doubting that the Fed would deliver another cut, especially if financial markets were back in risk-on mode.

“Should the positive trade headlines cluster, we could well see the precious metals complex consolidate lower, particularly given that other event risks have somewhat simmered, ahead of the various central bank meetings in September,” the Canadian broking group said in a note.

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