Gold Extends Gains Following Dovish Fed Remarks

Gold Daily Chart

July 15th, 09:08AM GMT

Gold marched higher in early trading on Thursday, reaching 1-month highs and rising above the 200-period simple moving average (SMA) – an important line in the sand between bulls and bears in the market. The yellow metal surged and the US dollar wilted on Wednesday, following accommodative comments from U.S. Federal Reserve Chair Jerome Powell.

In remarks before a congressional hearing, Powell reassured investors that the Fed plans to stay on track with its dovish monetary policy, despite rising inflation readings. Lower interest rates make gold and other non-yielding assets a more attractive investment while rising interest rates dampens their appeal.

Economic data released this week showed surging inflation and stoked fears of the U.S. economy overheating. On Wednesday, the US Department of Labor reported that the Producer Price Index (PPI) rose more than expected, marking the largest annual increase in over 10 years. The data came on the heels of Tuesday’s Consumer Price Index (CPI) report, which showed a spike of 5.4 percent in the year through June – the largest year-over-year gain since 2008.

In his testimony Powell addressed the issue of inflation, stating: “The high inflation readings are for a small group of goods and services directly tied to the reopening”. The Fed has signaled that it expects to maintain its bond buying program until there is “substantial further progress” on jobs.

Looking at the gold daily chart we can see that the prior high of $1,916 represents potential resistance above, while the prior lows of $1,750 and $1,675 lie below as areas of support. A close above the 200-period SMA on Thursday would embolden the bulls ahead of the weekend.