Gold back to high $1,900 as dollar falls; Fed voices inflation, banking worries

By Barani Krishnan

Investing.com -- The Fed’s refrain that U.S. inflation is too high has seldom caused more than a passing interest in the gold market over the past year despite the yellow metal being labeled as a hedge against price pressures.

On Wednesday though, it became the call for a rally, returning gold to the high $1900s after snapping two days of losses as Fed Chairman Jerome Powell’s view of inflation as the common public enemy of Americans brought safe-haven seekers back to the precious metal. The dollar’s tumble for a ninth time in 10 sessions also helped gold.

The front-month April gold futures contract on New York’s Comex officially closed Wednesday’s trade up just $8.50 at $1,949.60 an ounce, after losing in two previous sessions almost $75 from Monday’s one-year high of $2,014.90.

In post-settlement trade though, April reached as high as $1,981.90, almost halving the deficit of the past two days.

“Inflation remains too high, and the labor market continues to be very tight,” Powell said, after the Fed added another quarter point to rates,” bringing them to a peak of 5%. “My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal. Price stability is the responsibility of the Federal Reserve. Without price stability, the economy does not work for anyone.”

Powell also said the U.S. financial system remained a worry despite calling the financial industry as a whole “sound and resilient”. Some analysts saw that as a further support for gold’s standing as a safe haven.

The Dollar Index fell to a more than one week low of 101.677 against a basket of currencies, sliding for a ninth time in 10 sessions and losing over 3% in the process. Gold is a contrarian trade to the dollar. The greenback extended losses on Wednesday despite Powell affirming no rate cuts for the rest of the year, a situation that would normally be bullish for gold.

Technical charts show gold might be positioned to return to the $2,000 levels if the current momentum stayed. “Breaking and sustaining above $1,968-$1,978 will put gold back on the bullish path of resuming the uptrend, which targets $2,010 initially, followed by $2,040 and $2,056,” said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.