Gold Dips as Powell Plays Down Effect of Rising Inflation
Gold is trading bearish on Wednesday as the US dollar makes gains and surges close to a four-month high following Fed chair Powell’s assurances that the rise in inflation is nothing to worry about. At the time of writing, GOLD is trading at a little above $1,730.
During the previous session, Powell made these remarks when testifying before the Congress, allaying concerns that higher inflation as the economy recovers could require the central bank’s intervention. Powell maintained that a rise in prices was a sign of improvement in economic conditions and was driven by pent-up demand and bottlenecks in the supply chain, and its effects would be temporary and not too severe to need action by the Fed.
This sent US Treasury yields lower but bolstered investor confidence in the US dollar, which shares a negative correlation with gold, and as a result, drove the yellow metal prices lower. Gold is also considered a hedge against inflation and Powell’s remarks downplaying worries about higher inflation also allayed markets’ fears and weakened the safe haven appeal of the metal.
However, losses in gold remain limited as markets worry about the latest wave of the pandemic which has gripped Europe and forced several countries to extend lockdowns and restrictions. This is likely to not only delay economic recovery across Europe but have an adverse impact on the overall global economy as Europe is one of the most important markets from a trade and economic perspective.
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