By Barani Krishnan
Investing.com - Bulls in gold regained control Wednesday of a market that had floundered for a week, pushing prices of the yellow metal up almost 2% on the day as markets braced for a dollar-dovish speech from the Federal Reserve Chairman.
Benchmark December gold futures on Comex settled up $29.40, or 1.5%, at $1,952.50 per ounce after setting a one-week high at $1,958.35. The last time Comex gained more than 1% on a day was a week ago, on Aug 18, when it jumped 2% to hit a session high of 2,015.60.
Before Wednesday’s rebound, December lost $90 over the past five sessions, plunging on a potent combination of higher bond yields, resurgent equities and a strong dollar. Bond yields and stocks on Wall Street put in a positive showing Wednesday after U.S. durable goods orders for July outperformed, but the greenback fell as the Dollar Index lost its 93-point handle.
Futures aside, the spot price of gold, which reflects trades in bullion, also rose 1%, or $19.35 to $1,947.50 by 1:55 PM ET (17:55 GMT), after a peak at $1,949.97.
“The positive intraday momentum will likely remain in place while above $1,930,” Matías Salord, an economist and commentator on gold, said in a posting about bullion on FXStreet. “The next resistance stands at $1,950/55. A consolidation above would open the door to more gains.”
The bounce in gold came as traders across markets awaited Fed Chairman Jay Powell to present his outlook on the U.S. economy at the central bank’s annual Monetary Policy Framework Review due at 9:00 AM (13:00 GMT) Thursday.
Powell — who will be speaking from home due to the coronavirus pandemic, instead of the typical Jackson Hole, Wyoming, venue for the speech — is expected to make the case for stronger monetary stimulus to help the economy.
Investors will be on the lookout for signs that the Fed will find additional ways to bolster the economy should Congress fail to deliver on a new pandemic relief package.
A major question — particularly ahead of the Fed's September policy meeting — is whether Powell will favor shifting inflation targets to an average, instead of the long-favored 2% level.
Such a shift will allow inflation to run higher before interest rates are raised. It’s a dynamic that could clearly weaken the dollar and boost gold.
“The gold trade is back,” said Ed Moya, an analyst at OANDA. “Gold prices are reframing their short-term outlook after a weaker dollar … and as dovish expectations grow for Fed Chair Powell’s speech later in the week. If Fed Chair Powell does not disappoint the doves, gold could quickly look to recapture the $2000 level this week.”
Moya said pressure was growing by the day for the U.S. Congress to deliver more fiscal support for the economy, and the Fed was likely to step in to fill the void. White House Chief of Staff Mark Meadows said on Wednesday that a new coronavirus relief bill was unlikely to be approved before September due to wrangling between President Donald Trump and his rivals in Congress.
“The longer the wait, the larger the package will end up being,” Moya said. “Gold is about to shine bright again and the necessary consolidation before the climb back toward record high territory could be ending.”
December gold did dial back from the day’s highs after Comex’s settlement as the dollar recovered some ground it lost. But with bulls still in a position to widen their lead during Wednesday’s after-hours session, charts showed the benchmark Comex gold contract could pierce the $1,970 ceiling before the start of Thursday’s Asian trading.