Markets ‘want more substance’ out of Powell as gold price tumbles $72 in less than an hour

Markets ‘want more substance’ out of Powell as gold price tumbles $72 in less than an hour by Anna Golubova for KitCo News

Gold’s price action once again kept investors on their toes as the yellow metal rallied to a daily high of $1,987 an ounce and then plunged more than $72 to $1,914 an ounce in just under an hour.

At the time of writing, December Comex gold futures were trading at $1,927, down 1.31% on the day.

All eyes were on the Federal Reserve Chair Jerome Powell’s keynote address at the virtual Jackson Hole Symposium Thursday morning.

Powell did not disappoint in delivering major changes to the central bank’s monetary policy approach, including the highly anticipated flexible form of average inflation targeting.

Under the new approach, the Fed will seek to achieve inflation averaging 2% over time. This means that following periods of inflation below 2%, monetary policy will focus on getting inflation to run above 2% for some time.

“Our longer-run goal continues to be an inflation rate of 2 percent … Our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time,” Powell explained.

Another major change was regarding the maximum employment goals, which will now be guided by assessment of shortfalls from maximum employment levels rather than deviations. Powell also stressed that robust job market can be sustained without causing an outbreak in inflation.

“The significance of Powell’s speech was that maybe we are past this initial hurdle of pumping money and now onto the next phase where we are focusing on building job growth,” RJO Futures senior commodities broker Daniel Pavilonis told Kitco News. “Initially gold spiked on the idea of flexible 2% inflation and interest rates being kept at zero for a longer time. But then the market started to come off when it sounded like Powell started looking at COVID as being more and more under control and looking at the pandemic as being in the rear-view mirror.”

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