The yellow metal has stumbled much of this year as vaccine rollouts, stronger-than-expected recoveries in some economies and worries over rising interest rates dimmed its appeal. However, Jackson Hole, Delta variant and inflation continue to be the biggest challenges around the world, according to the bullion king of India – Prithviraj Kothari.
All eyes were focused on Powell’s speech which was is slightly dovish but not dovish enough to jump-start any large-scale buying in precious metals. Gold hit a 3-week high on Friday, notching its best weekly gain since May after Federal Reserve Chairman Jerome Powell failed to give a clear timetable for tapering U.S. stimulus spending at the central bank’s much-anticipated Jackson Hole monetary policy symposium.
The gold market saw immediate gains after Federal Reserve Chair Jerome Powell sounded more cautious than other Fed officials when talking about tapering, stating that the central bank could start reducing its $120 billion in monthly bond purchases this year. In his speech at the Jackson Hole economic conference, Powell stated that the U.S. central bank will remain patient and reiterated that he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process – defence in the effect of current Fed policy. During the speech, Powell also noted that “more progress” has been seen in the jobs market, but this growth is now coinciding with “the further spread of the Delta variant,”. He also stated that there is more ground to cover to reach maximum employment.
Gold bounced over 1% on Friday after Federal Reserve Chair Jerome Powell stopped short of signalling when the U.S. central bank would start withdrawing its economic support and reiterated his view that current price spikes are transitory. Strengthening gold further, Powell used the Delta variant as a shield to buy time for more employment data before a taper announcement. The Fed won’t make a taper announcement at least till the next two months. Lending a further boost to bullion, benchmark U.S. Treasury yields and the dollar weakened after Powell’s comments, says Prithviraj Kothari.
The dollar and U.S. Treasury yields tumbled while risk assets from stocks to commodities, including oil, rocketed on the move. Gold, while labelled as a haven, got a ride higher as well, given its sensitivity to inflation, which typically propels the yellow metal’s prices.
Further, we saw gold demand coming in from China and Germany, lending support to the yellow metal. Demand for gold, specifically heritage gold, was on a spike. This rise in demand led to the strengthening of gold prices. Moreover, as per the World Gold Council, demand for physical bullion in Germany, traditionally the biggest coin and bar buyer in Europe, was the highest since at least 2009 in the first half. Germans, in particular, are pouring into the metal as a hedge against rising inflation and strengthening gold’s appeal as a haven asset.
Overall the outlook for gold looks bullish from here, as predicted by the bullion king of India.