On Tuesday (March 7), spot gold moved further away from the overnight high of $1,858.13 an ounce since February 15, but investors awaited testimony from Federal Reserve Chairman Powell to Congress and the U.S. Department of Labor’s report later this week. The jobs report for clues on the path of future U.S. interest rate hikes, so the downside for gold prices is limited.
At 19:58 Beijing time, spot gold fell 0.25% to $1,842.08 an ounce; the main COMEX gold futures contract fell 0.40% to $1,847.2 an ounce; the U.S. dollar index rose 0.25% to 104.524.
Powell unlikely to deliver surprises
Powell is scheduled to give semiannual testimony before Congress on Tuesday and Wednesday. Market participants expect the Fed to raise interest rates by 25 basis points at its March 21-22 meeting, with rates peaking at 5.475% in September.
Investors will be watching closely for any hints about how much the Fed will raise interest rates in March, as markets are betting on a nearly 30 percent chance of a 50 basis point hike. Additionally, Powell’s comments may help markets rebuild expectations for an eventual rate peak.
To the Fed’s surprise, so far the U.S. economy has been largely able to handle the aggressive rate hikes enacted last year, there has been no serious loss of economic growth momentum, and businesses are not yet on the verge of mass layoffs, with new filings weekly despite some high-profile layoffs. Unemployment claims have remained below 200,000 for seven straight weeks, matching pre-pandemic levels.
“He has to send two signals, one is to reiterate that some progress has been made on inflation, and the other is to really stick to the prospect of high interest rates for a long time until inflation is clearly resolved,” said Robert Teeter, head of investment policy and strategy at Silvercrest Asset Management.
Komal Sri-Kumar, President of Sri-Kumar Global Strategy, said: “High inflation has become poisonous. The Fed did not recognize the upward pressure on prices that had occurred in 2021, and then the situation became very bad.” Attack aggressively.
Chairman Powell is likely to “take a tone that is both firm and measured,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note. Powell will point to the “resilience of the real economy” while warning that inflationary pressures persist and that the road to taming it “will be long and bumpy.”
Ahead of the U.S. non-farm payrolls data, Powell is unlikely to give any significant clues about the Fed’s policy path. The market’s relatively dovish expectations for Powell have optimists leaping. Still, markets will try to read between the lines, which could affect how they price in Fed policy moves beyond March. Any unexpectedly hawkish comments from Powell could quickly rattle market sentiment and call back dollar bulls, which in turn could crush gold prices.
“Gold has found resistance around $1,860 this week,” Craig Erlam, senior market analyst at OANDA, wrote in a note. Lows near $1780-1800.
Christopher Wong, currency strategist at OCBC Bank, said: “Gold may consolidate ahead of Powell’s testimony, but with the Fed’s tightening policy extended, gold may rebound once the Fed’s current rate hike cycle is over – the question is timing.”
Fed officials seek employment cooling
Market sentiment in the U.S. was mixed overnight, with upbeat U.S. factory orders data failing to lift the greenback as traders adjusted their greenback positions. And all eyes are also focused on the US non-farm payrolls data for February to be released on Friday. Many Fed officials are looking to cool the labor market, and the performance of upcoming data this week will be important in determining how high rates can ultimately go.
In fact, the U.S. economy and job growth continued to beat expectations, with more than 500,000 new jobs created in January and an unemployment rate of 3.4%, the lowest since 1969, giving Powell a fresh blow. This continued economic strength may be the key question for Powell to answer: whether the impact of monetary policy tightening has occurred or will be delayed, whether the current economy requires tighter monetary policy, and the risks that come with it.
It is worth noting that the combination of U.S. factory orders data for January and the recent hawkish tone of Fed policymakers testing market participants; Doves hold out hope for confirmation of an inflection point in Fed policy.
Analysts at TD Securities said: “If the cooling in employment is not sufficient, the market may predict that the Fed will give the green light to raise interest rates by 50 basis points at the March policy meeting, which is expected to weigh heavily on gold prices.”
But Evercore ISI’s Guha pointed out that Powell is unlikely to raise interest rates by 50 basis points later this month. The Fed will only raise rates by 50 basis points in March if peak interest rates are expected to eventually rise by 50 basis points.”
Han Tan, chief market analyst at Exinity, said gold would be heavily influenced by Powell’s testimony and potential cues from the U.S. jobs report. On a flat road, gold, a non-yielding asset, may give back the gains it has made so far this month.
Spot gold may be supported near $1841
On the daily chart, the price of gold may start an upward wave III from $1805. On the hourly chart, the price of gold is expected to end the wave II trend that started at US$1858 near US$1841. Wave ii is a sub-wave of the upward (iii) wave that started from $1830, wave (iii) is a sub-wave of the upward ((i)) wave that started from $1805, and wave ((i)) is a sub-wave of wave III .