The FED : Jerome Powell Historic Speech
(Wed, 26 Aug 2020). Expectations around higher inflation should, in theory, catalyze another gold rally. All eyes are on Jerome Powell.
Federal Reserve Chairman Jerome Powell will speak about inflation on Thursday, strategists predict. Higher inflation rates could lead gold prices higher, but the markets are not expecting significant changes. Analysts suggest unless the Fed significantly alters its policies, the precious metal might remain stagnant. On August 27, Federal Reserve Chairman Jerome Powell will speak about “average inflation” during a virtual conference. Strategists anticipate the Fed will allow inflation to rise higher than usual, which should theoretically catalyze gold.
After achieving a new all-time high at $2,075 on August 6, the gold price has declined by 7.1%. Some strategists say gold investors are not expecting significant policy changes from the Fed.
Some Argue Inflation Hasn’t Boosted Gold. Will It This Time?
When the economy prospers, the rate of inflation typically rises as the cost of living increases. A drop in inflation, as seen in several major economies in the past like Japan, signals an economic slump. To avoid further economic decline as a result of the pandemic, the Fed might “seek a moderate inflation overshoot.”
Haven assets like gold benefit from rising inflation as investors exchange dollars for bullion to stave off currency depreciation. Due to the lack of correlation between gold and traditional assets, rising inflation could translate to a spike in bullion demand. As such, analysts attribute gold’s rally to growing concerns about inflation.
Strategists say the Fed would have to show more than words for the markets to believe in rising inflation. Once inflation rates begin to rise, then the gold market could react. Until then, analysts expect a cautious stance from investors.
Avid Gold Investors Believe Inflation Fueled the Haven Asset
Long-time gold investors, like Peter Schiff, are adamant that inflation fears caused gold to rally since April. For now, the sentiment around gold in anticipation of the Fed’s virtual conference appears mixed. Some believe that the markets might not react until inflation rates increase. Others predict that the expectations of inflation alone might be enough to fuel a gold rally.
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