Gold Prices Biased Higher with Powell Testimony, US CPI Eyed


  • Gold prices held up by low yields, underlying unease about market outlook
  • Fed outlook in focus as Powell testifies in Congress, CPI data is published
  • Baseline price support seen holding, with surprise risk tilted to the upside

Gold prices have held up in a narrow $1536-1612/oz range since the beginning of the year even as other benchmark assets gyrated with swings in underlying sentiment. This probably speaks to two sources of baseline support.

First, interest rates around the world are ultra-low relative to historical averages, and there is seemingly little scope for them to rise in the near term. That means the opportunity cost of owning a non-interest-bearing asset like the yellow metal is comparatively low.

Second, while the initial frenzy triggered discrete risks like military escalation between the US and Iran or the Wuhan coronavirus outbreak has ebbed, an underlying sense of unease and uncertainty remains. Economic growth is recovering but has a long way to go before 2018 peaks are in sight.

Meanwhile, assorted risks like the US presidential election and the lingering possibility of a no-deal Brexit continue to stew in the background even as central banks fret about their depleted firepower. The ECB tellingly launched a comprehensive review of its mandate, for example.


The outlook for US monetary policy is likely to command the spotlight in the week ahead. A steady stream of scheduled commentary from FOMC officials will be headlined by Fed Chair Jerome Powell. He is due on Capitol Hill for his semiannual testimony before committees of the House and Senate.

Mr Powell seems likely to reassert the Fed’s preferred no-change posture for the remainder of the year. A word will no doubt be spared for as-yet undefined risks, like any drag from the Wuhan virus on global growth, but “data dependence” will probably be invoked against near-term countervailing action.

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On the data front, January’s CPI report is expected to show that headline inflation picked up to 2.4 percent on-year. However, the core measure of underlying price growth excluding volatile food and energy costs is seen falling to a six-month low at 2.2 percent on-year.

Benchmark food prices – like those for wheat and rice – rose alongside stocks in the fourth quarter as ebbing recession fears buoyed the demand outlook, hitting multiyear highs by January. At the same time, crude oil price volatility surged as Washington and Tehran clashed.

The Fed might be expected to look through such influences, seeing them as relatively transitory in the context of its medium-term target for price stability. Still, a core CPI reading north of 2 percent seems comfortable enough for the central bank to remain in wait-and-see mode.


On balance, scheduled news flow seems to promise little that has scope to dislodge the underlying fundamental backdrop. This probably limits scope for weakness. Meaningful progress to the upside will likely require one of the many potential risks in play to jump into the foreground.

For example, if the coronavirus outbreak worsens or the outcome of the US presidential primary in New Hampshire spooks the markets enough to bring down yields, gold prices may rise in earnest. Perhaps most critically, a surprise of this kind seems more likely than a similarly potent price-negative alternative.

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— Written by Ilya Spivak, Sr. Currency Strategist for

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