Not only is gold losing its safe-haven allure as tensions between Israel and Iran have begun to ease with a potential ceasefire in place, but the precious metal is also not receiving any monetary support as the Federal Reserve is expected to maintain its neutral monetary policy stance for the foreseeable future.
Federal Reserve Chairman Jerome Powell is on Capitol Hill this week to present his Semiannual Monetary Policy Report to Congress. In his day-one opening remarks on Tuesday before the U.S. House of Representatives Committee on Financial Services, Powell reiterated the central bank’s stance that it is in no hurry to shift its current position.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” he said.
Although the U.S. economy is slowing, Powell noted that the labor market remains fairly resilient and that the focus currently remains mostly on inflation. He added that President Donald Trump’s tariff policies continue to create significant uncertainty in the economy.
“Policy changes continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things, on their ultimate level,” he said. “The effects on inflation could be short-lived—reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.”
The gold market has seen solid selling pressure since the start of the week and lost further ground following the release of Powell’s opening remarks. Spot gold last traded at $3,306.19 an ounce, down nearly 2% on the day.
According to some analysts, $3,300 an ounce represents an important support level, and a break below it could make $3,000 the next major downside target.
However, some analysts have said that despite the Federal Reserve’s neutral stance, it’s only a matter of time before interest rates come down, and these expectations will continue to support gold prices through the summer. According to the CME FedWatch Tool, markets are expecting the central bank to ease interest rates in September.
Source: Neils Christensen Kitco
