Gold price tips higher as dollar sags ahead of Fed’s Powell testimony

February 27, 2018

London (Feb 27)  Gold prices clung to positive territory early Tuesday ahead of the first congressional testimony from new Federal Reserve Chairman Jerome Powell and any clues he might offer on the likely pace of interest-rate hikes this year.

Gold gained and the dollar fell as most analysts looked for a fairly neutral position from Powell in his maiden trip to Capitol Hill as Fed leader.

April gold GCJ8, +0.09% rose $1.50, or less than 0.1%, to $1,333.80 an ounce. Prices have gained modestly since the contract tallied a loss of 1.9% for last week—the biggest drop since the first week of December. May silver SIK8, +0.20%  edged up by 2 cents, or 0.1%, to $16.64 an ounce.

The silver-focused exchange-traded iShares Silver Trust SLV, +0.58%  actually slipped premarket, as did the gold ETF, the SPDR Gold Shares GLD, +0.25%

Powell’s prepared remarks to the House Financial Services panel will be released at 8:30 a.m. Eastern Time, and his testimony is slated to begin at 10 a.m. Eastern.

Investors are chiefly looking for what the new Fed chief will say about how fast the central bank might raise interest rates if inflation starts to pick up.

“Powell is generally considered to be a centrist on the FOMC, and the consensus among the majority of the group hasn’t shifted yet to four rate hikes [from the three in 2018 the Fed panel has estimated],” said Marshall Gittler, chief strategist at ACLS Global.

“They may be thinking that adding fiscal stimulus to an economy that’s already surpassed full employment could mean more inflationary pressure than they expected, but why should Powell risk his credibility at the outset by predicting that it will – especially when it’s not clear how much stimulus is actually coming,” he said. “I think he’ll play up ‘continuity’ and unless we get some deft questioning that elicits a more unguarded view, [the dollar] may weaken afterwards.”

Plus: Fed and new boss Jerome Powell are on inflation watch as anxious investors look on

On Monday, St. Louis Fed President James Bullard said during a speech that he did not believe the so-called neutral U.S. interest rate is likely to rise much over the next two years.

With the risk of a less-than-hawkish stance from Powell in the air, the ICE Dollar Index DXY, -0.01% eased. Precious metals, often pegged to dollars, tend to rise when the buck weakens because a falling dollar can make buying those assets cheaper for investors using weaker monetary units.

While inflation worries could spur safe-haven gold buying, rising interest rates would pressure the metal because bullion pays no interest. Expectations that there could be an additional rate hike helped push the 10-year yield closer to the 3% mark last week, though that yield has pulled back in recent days. The yield on the 10-year Treasury note TMUBMUSD10Y, +0.38% edged up to 2.873% from 2.862% late Monday.

In other metals, May copper HGK8, -0.59%  fell 0.6% to $3.204 a pound.

April platinum PLJ8, -0.09% fell 0.3% to $998.50 an ounce, while June palladium PAM8, -0.02%  fell 0.1% to $1,053.45 an ounce.


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