Gold Jumps Above $2,200 An Ounce For First Time On Dovish Powell

(Bloomberg) -- Gold jumped to a record above $2,200 an ounce after the Federal Reserve maintained its outlook for three rate cuts this year, suggesting it isn’t alarmed by a recent uptick in inflation.

Bullion rose as much as 1.6% to $2,220.89 an ounce in early trading, before paring some of those gains. It’s surged since mid-February, underpinned by long-standing supports including heightened geopolitical risks and buying by central banks, led by China. The rapid ascent has surprised many seasoned market observers, however, as there hasn’t been a clear catalyst.

The rally has been partially driven by expectations for looser monetary policy in the US, and that was reaffirmed by the Fed on Wednesday. Chair Jerome Powell continued to highlight that officials would like to see more evidence that prices are coming down, but said “it’s still likely in most people’s view that we will achieve that confidence and there will be rate cuts.”

“What we saw last night was the green light really for gold traders to come back in,” said Chris Weston, head of research for Pepperstone Group Ltd. “The Fed have said that right now they’re tolerant of the inflation that we’ve seen, they’re tolerant that the labor market strength is not going to be the impediment.”

Spot gold rose 0.9% to $2,206.61 an ounce as of 2:32 p.m. in Singapore. The Bloomberg Dollar Spot Index declined 0.2%. Silver, platinum and palladium were all higher. 

On the geopolitical front, there are a number of risks boosting gold’s allure as a haven asset. Russia appears to be gaining the upper hand in its war in Ukraine, the Israel-Hamas conflict continues unabated and has led to a re-routing of global shipping, while the US presidential election at the end of the year could prove massively consequential for markets. 

Read More: Chinese Buying Set the Stage for Gold’s Latest Record Run

Chinese buying has also underpinned prices. As well as the central bank, regular people have been stocking up on coins, gold bars and jewelry to safeguard their wealth from a yearslong property downturn and losses in the country’s stock market.

“I think the Fed not taking the opportunity of recently firmer inflation to lean hawkish at their meeting yesterday means gold is now going into a short-term overshoot scenario,” said Marcus Garvey, head of commodities strategy at Macquarie Group Ltd.  A move “towards $2,300 an ounce is a reasonable technical target,” he said.

--With assistance from Jack Ryan.

(An earlier version of the story corrected when traders boosted net long positions by most since 2019 in the previous 5th paragraph.)

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