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Powell's Hearing and Gold

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On Tuesday, Powell testified before the U.S. Congress. What do his remarks mean for the gold market ?

Yesterday, we wrote about Yellens last testimony before the Joint Economic Committee . Her remarks were very interesting, but sorry, Janet she is no longer the most important person at the Fed. Surely, she is still the Fed Chair, but markets are forward-looking. For investors, signals from Powell are now more important. So lets analyze his Tuesdayconfirmation hearing before the Senate Committee on Banking, Housing, and Urban Affairs .

Powells prepared remarks were rather short and cautious, and without any surprises. On monetary policy, the next Fed chair said that the U.S. central bank expected interest rates to rise somewhat further and the size of our balance sheet to gradually shrink. Powell also pointed out that he would do everything in his power to preserve the Feds independence and nonpartisan status. Powell apparently tried to calm the Democrats who were afraid of Trumps influence on the new Fed chief. Last but not least, Powell subtly rejected the idea of a more rule-based approach, saying that we must retain the flexibility to adjust our policies in response to economic developments.

The hearing was more interesting, as Senator Brown pressed Powell on several issues (mostly on the evaluation of the impact of tax reform). The main message from that part is that Powell will provide continuity and stability. It means that there will be an interest rate hike in December (as Powell noted, the case for raising interest rates at our next meeting is coming together) and further increases in 2018. And the Feds balance sheet will shrink steadily over the few years, likely to $2.5 to $3 trillion. But the tightening cycle will be very gradual and cautious to avoid disruptions in the financial system. Indeed, Powell claimed: there is no indication in wages that the labor market is overheating or even hot. It sounded rather dovish, so there is a hope for gold.

Powell also confirmed that he endorsed easing the burden of financial regulation on smaller banks, although he did not support any radical deregulation for all entities. But his remarks were enough to please the financial market bank stocks rallied after the hearing. This is indication that the Powells leadership in general, and testimony in particular, will not be positive for the gold market. This is because the markets expect a continuation of low interest rates (a gradual approach to normalizing monetary policy), less regulation, lower taxes, and better earnings such a sentiment is not supportive for the yellow metal.

Summing up, Powell testified before the U.S. Senate. Although he sometimes sounded dovish, the general message was that Powell would provide a continuation of Yellens monetary policy . It does not have to be a disaster for gold prices, but it will not be very supportive either. Stay tuned!

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits Gold News Monitor and Market Overview Editor

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About the author

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of monetary inflation (Cantillon effects). Arkadiusz is a free market advocate who believes in the power of peaceful and voluntary cooperation of people. He is an economist and board member at the Polish Mises Institute think tank. He is also a Laureate of the 6th International Vernon Smith Prize. Arkadiusz is the author of Sunshine Profits’ monthly Market Overview report and daily Gold News Monitors, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes.

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