Gold Hits 3-Month Peak: Powell’s Testimony Could Make or Break the Rally

Gold prices hovered near a three-month peak on Tuesday, buoyed by underwhelming U.S. economic data and sustained investor appetite as markets braced for testimony from Federal Reserve Chair Jerome Powell later this week.

The precious metal’s spot price was little changed at $2,114.59 per ounce by mid-morning in New York, not far from the $2,119.69 level reached on Monday – gold’s highest since early December. U.S. gold futures dipped 0.2% to $2,121.60 an ounce.

The latest surge in gold has been fueled by a consistent softening of economic indicators in the world’s largest economy. Data last week showed the U.S. manufacturing sector contracted further in February, while inflation cooled and consumer sentiment remained muted.

“This rally was sparked by the weaker-than-forecast U.S. figures and the pullback in real interest rates,” said Joni Teves, a precious metals strategist at UBS. “But there’s also been an underlying positive sentiment driving demand for gold as a safe haven.”

Analysts say the Federal Reserve’s next policy moves will be crucial in shaping gold’s trajectory. Lower interest rates boost the allure of non-yielding bullion by decreasing the opportunity cost of holding it.

Fed officials have repeatedly pushed back against market expectations for rate cuts this year, citing the economy’s underlying strength and resilient labor market. On Monday, Atlanta Fed President Raphael Bostic said the central bank was under no pressure for an imminent easing of monetary policy.

Still, investors will closely parse comments from Chair Powell when he delivers his semi-annual monetary policy testimony to Congress on Wednesday and Thursday. They will also scrutinize key jobs data due this week for any signs of labor market cooling that could encourage a policy pivot.

“The market focus is squarely on Powell’s testimony and the employment numbers as traders hunt for clues about the Fed’s tightening plans and the health of the economy,” said Jake Manger, head of trading at Loyalty Trust & Investment Co. “Any hints of easing could really ignite a new burst higher for gold.”

Bullion’s recent strength has come despite continued drawdowns in gold-backed exchange-traded funds. Holdings in the world’s largest such fund, the SPDR Gold Trust, were down around 10% year-over-year as of March 4.

Teves of UBS suggested the selling was more a rebalancing of portfolios than an outright souring on gold, noting the “reasonably measured” pace of outflows.

Among other precious metals, spot platinum dipped 0.7% to $890.95 per ounce, while palladium shed over 1% to trade at $950.13. Silver retreated 0.8% to $23.71 an ounce.

ANZ analysts struck an upbeat tone on platinum, calling for a rebound driven by robust auto sales and the metal’s increasing use as a substitute for scarce palladium in catalytic converters.

With economic uncertainty lingering and central bank pivots looming, analysts say the environment remains conducive for more gold gains if the Fed adopts a more dovish posture in its policy messaging this week.

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