Gold futures quickly shrugged off Federal Reserve Chair Jerome Powell’s inflation comments after the yellow metal slumped in overnight trading. Gold, which is sensitive to a rising-rate environment, looked to remain resilient in this inflationary landscape.
April gold futures dropped $3.20, or 0.17%, to $1,926.30 per ounce at 12:52 GMT on Tuesday on the COMEX division of the New York Mercantile Exchange. Gold is down more than 1% on the week, but it remains up more than 5% year-to-date.
Silver, the sister commodity to gold, is trying to stay above $25. May silver futures tumbled $0.238, or 0.94%, to $25.07 an ounce. The white metal has slipped roughly 0.7% over the last week, but it is still 7.3% higher on the year.
Speaking at the National Association for Business Economics, Fed Chair Jerome Powell made quite the comment: The central bank needs to raise rates faster to get a handle on inflation that is running at its highest level in four decades.
He warned that the Fed’s planned rate hikes could be higher if it is deemed necessary.
“The labor market is very strong, and inflation is much too high,” Powell said in prepared remarks.
“We will take the necessary steps to ensure a return to price stability. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
The consensus among market analysts is that the Fed got it entirely wrong on the inflation front. The Eccles Building now anticipates higher inflation moving forward.
For example, the personal consumption expenditure (PCE) price index, the Fed’s preferred inflation measurement, is up 5.2%. The Fed’s target inflation rate is 2%.
“In normal times, when employment and inflation are close to our objectives, monetary policy would look through a brief burst of inflation associated with commodity price shocks,” he said. “However, the risk is rising that an extended period of high inflation could push longer-term expectations uncomfortably higher, which underscores the need for the Committee to move expeditiously as I have described.”
The US Treasury market was in positive territory across the board, with the benchmark 10-year yield up 0.024% to 2.341%. The one-year bill added 0.085% to 1.366%, while the 30-year bond picked up 0.037% to 2.573%.
A weaker greenback cushioned the blow for gold prices. The US Dollar Index (DXY), which gauges the buck against a basket of currencies, fell 0.08% to 98.42, from an opening of 98.5. A lower dollar is good for commodities priced in the currency because it makes it cheaper for foreign investors to purchase.
In other metal markets, May copper futures picked up $0.048, or 1.02%, to $4.7585 per pound. May copper futures slipped $13.20, or 1.26%, to $1,031.50 an ounce. May palladium futures shed $7.80, or 0.31%, to $2,529.50 per ounce.