Long-Term Yields Fall, Gold Spikes Higher as Powell Hints at Move Toward Neutral Rates

New York (Aug 26)  U.S. Treasury yields finished mixed on Friday after Fed Chair Jerome Powell said that "further, gradual" interest rate hikes are appropriate as the economy continues to show signs of strong growth. The Fed chief also added that he anticipates a slow and steady pace of rate hikes as policymakers look to balance economic growth and stabilize lofty asset prices.

Yields were mixed according to duration with short-term Treasury instruments closing higher, and the long-term debt instruments posting lower closes.

The yield on the 2-year Treasury note rose 0.012 to settle at 2.624 percent. The 5-year Treasury note yield also finished higher at 2.716 percent.  The yield on the benchmark 10-year Treasury note rose, closing at 2.813, while the yield on the 30-year Treasury bond settled down 0.012 at 2.961 percent.

In a widely anticipated speech at the central bankers' symposium at Jackson Hole, Wyoming, Powell also expressed confidence in the economy and said he does not see inflation ripping higher.

"I see the current path of gradually raising interest rates as the FOMC's approach to taking seriously both of these risks," he said, according to prepared remarks.

Comex Gold

Gold prices reversed course and spiked higher on Friday after a plunge in the U.S. Dollar. The greenback came under pressure after Fed Chair Powell dropped hints about the direction of U.S. monetary policy, which dollar traders interpreted as dovish.

December Comex Gold futures settled at $1213.30, up $19.30 or +1.59%.

Traders felt that Powell was leaning toward the dovish side after saying a gradual approach to raising rates remained appropriate to protect the U.S. economy and keep job growth as strong as possible with inflation under control.

Simply stated, bullish gold traders felt that the dollar could become a less-attractive investment as the Fed approaches a more neutral stance, while at the same time other major central banks are likely to begin raising rates.

Crude Oil

U.S West Texas Intermediate and international-benchmark Brent crude oil settled sharply higher on Friday as investors continued to debate the supply situation with the bulls feeling that Iran sanctions could curb output and the bears pointing to signs of oversupply. With the markets trading at nearly 50% of their summer price range, the action suggests a balance market with a slight bias to the upside.

October WTI crude oil settled at $68.72, up $0.89 or +1.30% and November Brent closed at $76.13, up $1.04 or +1.37%. Both finished the week higher for only the third time in nine weeks.

An escalating trade war between China and the United States continued to raise concerns about lower demand. Additionally, worries that Mexico's incoming administration would not strike a bilateral agreement over NAFTA with the U.S. also weighed on the market, traders said.

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