Gold trades nears all-time high as investors await Powell’s congressional testimony

Gold futures have advanced nearly $70 in the last two trading days. Beginning last Friday, gold opened at $2052.80, traded to a high of $2097.10 and settled at $2095.70 after factoring in a gain of $41. Today the strong advance and powerful upside rally continued. As of 4:32 PM ET gold futures basis the most active April contract has gained $28.80 and is currently fixed at $2124.40, the highest closing value on record.

The tremendous spike higher, on Friday, occurred after data revealed a contraction in US manufacturing activity for the 16th consecutive month in February. Concurrently, the University of Michigan consumer survey showed weaker-than-expected moral last month.

Members of the Federal Reserve are still mixed as to their outlooks and timing for interest rate cuts to begin. New York Federal Reserve President John Williams said that he expects, “the central bank to cut interest rates later this year, although other policymakers expressed reservations before supporting a dovish pivot.”

Atlanta Fed President Rafael Bostic said that given a “prospering” economy and job market, the risk inflation may get stuck above the central bank's 2% target or be sent even higher by “pent-up exuberance” exists.

But it is the congressional testimony by Chairman Jerome Powell that traders will intently focus on to see if he continues his narrative that there is no rush to cut interest rates. Or if he begins citing fresh inflation data which indicated the high cost of goods and services continue to keep inflation elevated.

As reported in Bloomberg on Friday, March 2, “Powell is headed to Capitol Hill, where he’ll deliver his semiannual monetary policy testimony to a House committee on Wednesday and a Senate panel on Thursday. The US central bank chief and nearly all of his colleagues have said in recent weeks that they can afford to be patient in deciding when to cut rates given underlying strength in the US economy.”

According to economic analysts (Anna Wong, Stuart Paul, Eliza Winger, and Estelle Ou) at Bloomberg, “Powell is expected to maintain a hawkish stance in his semiannual testimony to Congress, signaling to markets that the Fed is in no hurry to cut rates. If that leads to tighter financial conditions, it will keep the pressure on the economy and raise the chance of additional lagged impacts from monetary policy.”

And according to economist Mohamed El-Erian, “The Fed is 'held hostage' by data and risks sparking financial instability,”

As cited above, many Fed members continue to maintain the narrative that they are not in any hurry to raise rates. It is also widely believed that Chairman Powell is likely to maintain that narrative and reiterate his hawkish stance on interest rates and inflation when he testifies before Congress later this week.

On a technical basis, the breakout occurred when gold futures broke above their simple 50-day moving average. But that alone does not explain why gold has gone to record highs considering the narrative presented by the Federal Reserve, in which they continue to reiterate that they are in no hurry to raise rates and need more data to feel comfortable doing that.

Which makes it difficult to pinpoint what forces have driven gold $70 higher over the last two trading days. Long-term there is a looming debt crisis as the United States continues to pile on trillions of dollars in debt, but that is an unlikely reason for why we have seen gold rally so much this quickly.

There are analysts at Goldman Sachs who are reading statements by the Federal Reserve from a different vantage point, anticipating up to five rate cuts this year. With gold futures currently fixed at $2126, it is within striking distance of the record close at roughly $2155 that occurred in April and again in May 2023.

Wishing you as always good trading,