After Powell’s speech at Brookings Institution, the price of gold jumped above $1,800.
Ladies and Gentlemen, and gold bulls, we’ve got it! Yesterday (December 1, 2023), the price of gold jumped above $1,800 , as the chart below shows. Hence, we can say that gold started the last month of the year with a bang ! It was the largest one-day gain in two years. And the yellow metal hasn’t been above $1,800 since July 2022.
This is potentially a big event for the gold market. Some time ago I wrote that jumping above $1,700 was a great development, but gold needed to surpass $1,800 to talk about a new bull market with greater certainty. Unfortunately for the gold bulls, the price of gold stayed above $1,800 for one day only, so it still might be too early to open the champagne. However, we could be close to the next rally in gold .
Dovish Powell Fuels Rally
What was the driver behind the jump in gold prices? Jerome Powell gave a speech at Brookings Institution on November 30. It didn’t offer any revolutionary remarks, but investors deemed it dovish. What he said was just a confirmation that the Fed is likely to hike interest rates by 50 basis points in December, ending with jumbo hikes of 75 basis points.
However, the fact that the Fed is moderating the pace of rate hikes shouldn’t be interpreted as a sign that it’s pivoting. We’re approaching the pivot, but the US central bank is still going to rate hikes a few times and then pause for a while before any cuts in the federal funds rate (at least unless the next economic crisis bursts suddenly).
Implications for Gold
What does it all mean for the gold price (and other precious metals) outlook? Well, in the short run, we could see a correction after the recent rally. After all, traders heard what they wanted to hear, not what Powell said. He hasn’t so far mentioned the pivot. And the recent stronger-than-expected non-farm payrolls could give the Fed more time to continue the tightening cycle .
However, gold’s longer-term outlook is better, and it has recently improved. It seems that the inflation peak is behind us. The Fed is slowing down the pace of its rate hikes, which means that the worst is behind us. Markets are future-oriented , and it seems to me that gold already smells the pause in the tightening cycle, then a recession and a dovish U-turn.
Arkadiusz Sieron, PhD