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Powell speech pleases investors of both risk-on and safe-haven asset classes

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Federal Reserve Chairman Jerome Powell spoke virtually at the economic symposium, a yearly event hosted by the Kansas City Fed. Traders and market participants have awaited his speech to glean more insight into the current sentiment of the Federal Reserve as it pertains to their highly accommodative monetary policy. The tone of his prepared remarks was construed as being more dovish than last month’s FOMC meeting.

Towards the end of his prepared speech, Chairman Powell said, “That brings me to a concluding word on the path ahead for monetary policy. The Committee remains steadfast in our oft-expressed commitment to support the economy for as long as is needed to achieve a full recovery. The changes we made last year to our Statement on Longer-Run Goals and Monetary Policy Strategy are well suited to address today’s challenges.”

The net effect on U.S. equities and the precious metals was strong upward moves in both asset classes. The NASDAQ composite closed at a new record high gaining 183 points and closing at 15,129.5011. The same is true for the S&P 500, which gained 39.37 points (+0.88%) and closed at an all-time high of 4509.37. Although the Dow Jones industrial average gained 242.68 points, a net gain of +0.69%, it did not break its record high which occurred earlier in August.

Gold basis the most active December 2021 Comex contract had a significant gain of 1.41%, a total of $25.30 and closed above the key psychological level of $1800 per ounce. Gold closed out the week at $1820.50, just off the intraday high achieved at $1821.90. Powell’s words contained the right tone and timbre to satisfy investors and market participants.

There were two main takeaways to Chairman Powell’s speech today. The first the Federal Reserve still considers recent spikes in inflation for the large part as transitory. The second major take away was that although he said that they are not far from tapering their $120 billion monthly asset purchases, he made a big distinction between the beginning of tapering and a timeline for the onset of interest rates hikes.

Distinguishing between the timeline to taper and timeline to raise rates was made exceedingly clear when Chairman Powell said “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test. We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time. We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.”

His speech cleared the way for both gold and silver prices to have substantial gains over the upcoming weeks. The next major data set that market participants will focus upon will be the U.S. Labor Department jobs reports for the month of August. This will be the key report that Federal Reserve members will look at when they convene at the September FOMC meeting.

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer