By Barani Krishnan
Investing.com - The Federal Reserve’s warning that the United States had a lot more to endure from the coronavirus and that the central bank will respond with more stimulus bolstered gold’s safe-haven standing for a second day in a row on Wednesday, reinforcing its hold on the $1,700 perch.
While both bullion and gold futures were still some way off the highs of nearly $1,765 an ounce hit in late April, any back-to-back gains in the yellow metal seem to be a cause of celebration for longs in the market, especially with rival dollar also on the rise.
U.S. gold futures for June settled up $9.60, or 0.6%, at $1,716.40.
Spot gold, which tracks real-time trades in bullion, rose $12.39, or 0.7%, to $1,715.45 by 3:33 PM ET (19:33 GMT).
The dollar index, which pits the greenback against six major currencies, gained 0.4% to 100.305. The dollar and gold seldom move in similar directions.
The markets’ action came after Fed Chairman Jay Powell warned of a protracted road to recovery for the U.S. economy at a time when many are concerned that reopening too quickly could trigger a second wave of Covid-19 infections.
Calling the pandemic-ravaged downturn "significantly worse" than any recession since World War II, Powell also hit back at President Donald Trump’s counsel that the central bank cut rates to below zero, a tool he said wasn’t proven yet to be effective. But he indicated that the Fed will continue using stimulus to help the markets and U.S. companies through the crisis.
“Gold prices initially were sharply higher on Powell’s grim assessment to the outlook of the economy and commitment to use its tools to the fullest until the recovery takes form,” said Ed Moya, analyst at online trading platform OANDA.
“Negative rates are debatable, but continued stimulus by the Fed was pretty much promised by Powell, and that should help give gold further momentum to rise even higher.”