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By Barani Krishnan
Investing.com – It hit 3-week highs on Friday, posting its best weekly gain since May, after Federal Reserve Chairman Jerome backed down on announcing an explicit timetable for the withdrawal of stimulus measures and the reduction in the Fed’s bond purchases, as expected in its speech at Forum Events.
The US dollar fell, as did Treasury bill yields, while risk assets and commodities, including Brent and WTI, rose. Gold, although a safe haven, has been riding the wave, following metal prices.
“Powell has not given a clear idea on the end of monetary easing, leaving the markets with their speculation and putting the bulls at risk in their backyards,” said Philip Strebel, strategist at Blueline Futures.
It closed up $ 24.30, hitting $ 1,819.50 an ounce, after hitting $ 1,821.55 an ounce. And for the week, gold is up about 2% to record the biggest gain in a week since mid-May.
Strebel says gold is facing resistance at the 200-day moving average at $ 1,820 an ounce. He adds that his next goal is $ 1,835 to $ 1,840.
Today, Jerome Powell said the U.S. economy is in good shape, but remains vulnerable to the risks posed by the coronavirus pandemic.
The Fed chairman used the opening speech to say that despite the idea that tightening monetary policy will begin by the end of the year, the Corona outbreak and delta stress remain hurdles.
“In my opinion, the test of gradual and sustainable progress on inflation measures is over. There is clear progress towards full employment,” said Powell, referring to the Fed’s dual border goal.
But Powell put the Fed in a hedged position, saying, “We are looking at the incoming data, the evolution of risk.”
“Even after asset purchases are complete, our long-term securities remain an accommodating financial support tool. “
The Fed has been buying 80 billion treasury bills and $ 40 billion in real estate bonds per month since May 2020 to protect the US economy from the repercussions of the Corona virus. The central bank kept the interest rate close to zero.
Some accuse the Fed’s program of raising prices in the United States – when growth in the second quarter was 6.6%, almost double the decline in 2020, when GDP registered 3.5 %. The US central bank expects economic growth to reach 6.5% in 2021.
And the base – which excludes food and energy prices – grew 3.6% during the month of July, the highest rate since 1991. On an annual basis, the index has increased 4.2%.
The Fed’s inflation target is 2%.
Besides the asset purchase, the Biden administration adopted a $ 1.2 trillion stimulus package last January, and this week the Biden administration put forward a $ 3.5 trillion economic plan.
Everyone is debating and speculating on when the Fed will start to tighten monetary policy, which will counter the rampant delta tension.
On Thursday, 3 Fed members expressed their willingness to tighten monetary policy, and also said that the US economy would not be affected by the delta strain, which was hit by the Corona virus last year.
Patrick Harker, chairman of the Philadelphia Fed, said, joining the chorus, that asset purchases will stop as soon as possible. Unlike his colleagues, Harker has the right to vote on the decisions of the open market committee, which makes his statements clearer.
Not everyone is in the tightening chorus, there is Rafael Bostik, federal president of Atlanta, who has the right to vote on the decisions of the committee, which must be slowed down, especially in view of the Delta strain epidemic, and its impact on growth, which must be monitored before any tightening of monetary policy.
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