Gold gains as dollar dips after Powell flags inflation risks

5.6.22 - Gold Gains, Dollar Dips After Fedspeak

Gold last traded at $1,882 an ounce. Silver at $22.32 an ounce.

NEWS SUMMARY: Precious metal prices rose Friday on safe-haven buying and a weaker dollar. U.S. stocks extended losses, continuing their slide, after the Dow index posted its worst day since 2020.

CNBC--"Gold prices bounced higher as the dollar and U.S. Treasury yields slipped after Federal Reserve Chair Jerome Powell, following an expected interest rate hike, flagged risks to the economy from soaring inflation.

The dollar index fell to a session low as Powell said inflation was too high, making bullion more appealing for other currency holders. Benchmark 10-year Treasury yields also edged lower. 'The market expected the May FOMC meeting to have a hawkish tilt but the gold market viewed the widely anticipated 50bps hike as dovish relative to hawkish fears,' said Suki Cooper, an analyst at Standard Chartered.

'We maintain the view that gold will revert to taking its cue from real yields as the year unfolds pressuring prices lower in H2, but concerns around inflation, geopolitical risks and slower growth leave gold prices prone to upside risk in the near term.'

The Fed in their policy decision released before Powell's speech, raised benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and said it would begin trimming its bond holdings next month as a further step in the battle to lower inflation. While gold is considered an inflation hedge, lower U.S.

Kitco reports... 'There were a couple of very subtle changes in Chairman Powell's words. One of the major changes was that he spoke about the Federal Reserve's ability to raise interest rates and have the economy experience a soft landing. Today he replaced the word soft landing with 'softish landing' acknowledging the potential economic fallout because of the number of rate hikes needed to have an impact on inflation.'

During the press conference Chairman Powell addressed the possibility of larger rate hikes than a 50-basis point hike, saying that a rate hike of '75 basis points is off the table'. That statement created bullish market sentiment for both gold and U.S. equities."