Price of Gold Fundamental Daily Forecast – A Dovish Powell Could Sink the Dollar, Spiking Gold Prices Higher

Gold futures are inching higher on Tuesday on light volume as traders turned cautious ahead of U.S. Federal Reserve Chairman Jerome Powell’s testimony to a Senate Banking Committee later today.

Gains are being capped by a firmer U.S. Dollar and steady Treasury yields, while being underpinned by weaker demand for higher risk equities. Investors are once again selling the high-flying technology shares and buying beat-up value stocks as they bet on a recovery in the economy from the pandemic.

At 13:00 GMT, April Comex gold futures are trading $1809.60, up $1.20 or +0.07%.

Powell’s Testimony Moves to Forefront

Federal Reserve Chair Jerome Powell is scheduled to speak before the Senate Banking Committee on Tuesday, and investors are expected to look for any potential changes to the central bank’s dovish outlook in recent months. This could be a market moving event because rising bond yields and accompanying inflation fears are adding a level of drama.

Powell is mandated to meet with U.S. House and Senate committees to update Washington on monetary policy semiannually. Normally, the question and answer sessions are routine affairs, but recent rises in Treasury yields and renewed fears of inflation have raised concerns about how the Fed may react to these events, encouraging investors to pay closer attention than usual to these particular hearings.

“If he’s too sanguine about the rise in rates, the markets are going to take that as a significant green light for rates to rip higher, according to Nathan Sheets, chief economist at PGIM Fixed Income.

“The Fed is comfortable with an organic rise in rates reflecting shifts in views on growth and inflation,” he added. “But I think the Fed also wants to be careful that it doesn’t create and amplify a self-sustaining dynamic that pushes rates higher for other reasons,” Sheets added.

Those “other reasons” primarily would be fears that the economy could overheat.

Daily Forecast

While Powell’s testimony has been deemed today’s “key event”, traders should also be watching the price action in the U.S. equity markets. If the S&P 500 Index and NASDAQ Composite continue to fall sharply, traders may move back into the U.S. Dollar for safety and this could pressure gold prices.

Furthermore, if Powell comes across as too optimistic about the economy, thereby supporting the rise in yields then rates could move higher rather quickly, which would put further pressure on gold prices.

A dovish Powell could send rates lower, which could spike gold prices higher after sinking the U.S. Dollar.