Gold rises after Powell flags inflation risks

Published On: May 5, 2022Categories: Alternative Investments1.3 min read

Spot gold rose 0.87% to $1,885.06 per ounce, while U.S. gold futures had earlier settled down 0.8% at $1,885.4

Gold bounced higher on Wednesday as the dollar and U.S. Treasury yields slipped after Federal Reserve Chair Jerome Powell, following an expected interest rate hike, flagged risks to the economy from soaring inflation.

Spot gold rose 0.87% to $1,885.06 per ounce, extending slight gains made immediately after the rate hike announcement, to jump as much as 1.2%. U.S. gold futures had earlier settled down 0.8% at $1,885.4.

The dollar index fell to a session low as Chair Jerome Powell said inflation was too high, making bullion more appealing for other currency holders. Benchmark 10-year Treasury yields also edged lower.

The market expected the May FOMC meeting to have a hawkish tilt but the gold market viewed the widely anticipated 50bps hike as dovish relative to hawkish fears, said Suki Cooper, an analyst at Standard Chartered.

We maintain the view that gold will revert to taking its cue from real yields as the year unfolds pressuring prices lower in H2, but concerns around inflation, geopolitical risks and slower growth leave gold prices prone to upside risk in the near term, the analyst said.

The Fed in their policy decision released before Powell’s speech, raised benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and said it would begin trimming its bond holdings next month as a further step in the battle to lower inflation. While gold is considered an inflation hedge, lower interest rates and bond yields reduce the opportunity cost of holding zero-yield bullion. Elsewhere, spot silver rose 1.9% to $22.98 per ounce, platinum rose 3% to $990.76 and palladium was steady at $2,253.56.

About the Author: Jonathan Adams

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