By Barani Krishnan
Investing.com - Fed chief Jerome Powell poured cold water on the gold bull rally, but, in the end, the yellow metal continued its rally, reaching new six-year highs early in the session and ending slightly higher.
Bullion and futures of gold advanced for a seventh-straight day on Tuesday despite Powell’s defense of the central bank’s independence. That flew in the faces of gold longs expecting the Fed to cave to White House pressure and definitely cut rates next month.
Spot gold, reflective of trades in bullion, traded at $1,425.33 per ounce by 2:50 PM ET (18:42 GMT), up $5.73, or 0.4%, on the day. Bullion earlier peaked at $1,438.99, its highest level since May 2013. For the week, spot gold was up 1.8%, while for the month, it shows a gain of 9.2%.
Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled Tuesday’s trade up just 50 cents at $1,418.70 per ounce. It earlier peaked at $1,442.15, its highest level since Feb 2014. For the week, August gold is up 2.3%, while for the month, it shows a gain of 9.4%.
Powell said the Fed could be accommodative to retain the record expansion of the U.S. economy. But he emphasized that politics won’t be a consideration in its decision.
“The Fed is insulated from short-term political pressures -- what is often referred to as our ‘independence,’” he said in prepared remarks. “Congress chose to insulate the Fed this way because it had seen the damage that often arises when policy bends to short-term political interests. Central banks in major democracies around the world have similar independence.”
Powell’s remarks briefly led to a selloff in bullion and Comex gold in early afternoon trade in New York. But the market soon recovered, vindicating gold bulls who expect a continued rally to $1,450 or even $1,500.
“All the Fed Chairman managed to do was create a temporary blip on the market,” George Gero, precious metals analyst at RBC Wealth Management in New York, told Investing.com.
“Yes, a rate cut will be super important to sustaining the rally in gold, but we also have lots of other bullish factors like record expiration of gold options coming up, along with a world of political worries. Everywhere you look, from South America to China and the Middle East, the United States is engaged in political battles, and you need a hedge for that. You also need a hedge against the stock market.”
Options of gold futures have reached all-time highs above 1.6 million contracts. Open interest on Comex remains correspondingly significant at 589,256 lots from 448,068 at the beginning of June. On Wall Street, all leading stock indexes were down.