Gold Price Analysis: XAU/USD at highest in over a month amid dovish Powell comments

• Gold hit its highest level in over a month in the upper-$1750s in recent trade.
• Dovish remarks from Fed Chair Powell have been weighing on yields and the dollar and supporting gold.

Spot gold (XAU/USD) prices hit their highest levels in over a month of just north of the 18 March $1755 high in recent trade and continue to hold in the upper-$1750s. The pair has been on the front foot for most of Thursday’s session, rising from Asia Pacific levels in the $1730s. That means gold is trading with gains of about 1.1% or just under $20 on the day. To the upside, short-term bulls will be looking for a test of the 50-day moving average at $1764.

Driving the day

The main driver of gold price action on Thursday has been US government bond markets. Yields are a little lower, with the 10-year down about 2bps to under 1.64%. Following dovish commentary from Fed Chair Jerome Powell, more downside in US government bond yields may well be in store, which would be a positive for gold. Though bonds have not yet reacted much to Powell’s remarks, the US dollar has been hit, with the DXY slipping all the way back to the 92.00 level. The weaker US dollar is also a supportive factor for gold.

Fed Chair Powell Speaks

Fed Chair Jerome Powell has been speaking at an IMF panel over the last hour or so. Powell said that the outlook for the US economy has brightened as a result of fiscal support and vaccines. However, Powell noted that the slower pace of global vaccinations and the recent rise in Covid-19 infections in the US are both risks to the recent progress that has been made and that he expects a rise in Covid-19 cases to slow the economic recovery. Powell noted that while fiscal and monetary support have helped the US economy avoid a lot of scarring, the economy continues to need support, before adding that millions of people will have a hard time getting back into the workforce. In reference to the recent strong jobs report, Powell said the Fed would want to see a string of months like the March jobs report to see progress towards its goals, before pointing out that the unemployment rate in the bottom quartile of the economy is still 20%.

In sum then, Powell’s remarks on the economy were dovish; he acknowledged but seemed to play down recent strong data and the recent improvement in the economy’s economic outlook while coming across as eager to emphasise that the economy remains a long way from the Fed’s goals (as expected). Moving on to Powell’s remarks on inflation; he noted that a one-time increase in inflation is different from a persistent increase in inflation, which he defined as inflation going up “year after year after year”. In that vein, Powell reiterated that the upwards price pressures later this year are most likely to be temporary, in other words, saying that the Fed is not going to be worried by the pickup in inflation and will stick to its guns with regards to easy monetary conditions. These comments, whilst nothing new, also seem to have contributed to the dovish tone of Powell’s remarks.