Jerome Powells Historic Speech Might Not Revive Golds Vertical Rally
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.
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.
Heading into Jackson Hole we are confident Chair Powell will use his speech Thursday to tee up a profoundly consequential and risk-friendly move to soft inflation averaging at the Fed’s upcoming September meeting.
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.
Clueless Paul Krugman claims gold is not rising due to inflation fears but because bond yields are so low. But bond yields are only so low because the Fed is inflating the money supply to buy bonds. So, inflation explains both the fall in bond yields and the rise in gold prices.
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.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.