Gold holds steady ahead of US Federal Reserve Chairman Jerome Powell's speech

Gold held steady on Wednesday as market participants stayed away from making big bets ahead of a speech by Federal Reserve Chairman Jerome Powell amid rising speculation the United States could one day adopt negative interest rates

Reuters May 13, 2020 13:31:51 IST
Gold holds steady ahead of US Federal Reserve Chairman Jerome Powell's speech

Gold held steady on Wednesday as market participants stayed away from making big bets ahead of a speech by Federal Reserve Chairman Jerome Powell amid rising speculation the United States could one day adopt negative interest rates.

Spot gold was unchanged at $1,701.51 per ounce by 0326 GMT. US gold futures fell 0.1 percent to $1,704.50 per ounce.

“This kind of indecision (by investors) really has to do with uncertainty about whether the Fed would be successful with all this stimulus and a desire for liquidity,” DailyFx currency strategist Ilya Spivak said.

“Central banks have already deployed a giant wave of stimulus and are waiting for this lockdown to end to see if that is enough,” Spivak said, adding speculation that the United States might adopt negative rates will support gold.

Gold holds steady ahead of US Federal Reserve Chairman Jerome Powells speech

Representational image. Reuters

President Donald Trump on Tuesday again urged the US central bank to adopt negative interest rates. Last week, US money market instruments started to price in a chance of negative rates.

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Markets are now waiting for Powell’s speech at 1300 GMT for clarity on the health of the US economy.

“While we do not expect the Fed to go to negative policy rates, and they still have plenty of other monetary tools at their disposal ... the front-end curve pricing this phenomenon may be a bullish gold market tail risk,” according to a note from Citi Research.

“So even as we see the potential for gold market liquidation and broad asset market drawdowns in the next 3-6 months, we think gold trading will still mostly hover in a high-$1,600 to mid-$1,700 handle.”

Massive stimulus measures support gold as it is used as a hedge against inflation and currency debasement.

An estimated $15 trillion worth of stimulus has already been unleashed by central banks and governments to shield their economies from the coronavirus pandemic.

Underscoring the deeper economic impact of the virus, US consumer prices dropped by the most since 2008 in April, while 20.5 million Americans lost their jobs in the month - the deepest fall since the Great Depression.

The International Monetary Fund’s managing director said it was “very likely” the Fund would cut global growth forecasts further as the pandemic was hitting many economies harder than previously projected. Highlighting investor appetite for the bullion, SPDR Gold Trust holdings, the world’s largest gold-backed exchange-traded fund, rose 0.24 percent to 1,083.66 tonnes on Tuesday.

Palladium inched down 0.1 percent to $1,859.14 per ounce, while silver gained 0.4 percent to $15.47, and platinum rose 1.4 percent to $764.11.

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