Many analysts believe that the unprecedented increase in gold and silver right from the beginning of the new year partly stems from increasing concerns about the political independence of the US Federal Reserve (Fed). However, at a press conference after the monetary policy decision, Fed Chairman Jerome Powell rejected this view.
There may be opinions that we are losing credibility, but that is simply not true. Looking at the current inflation expectations, the Fed's credibility is still in the right position. We are not caught up in the fluctuations of each specific type of asset, although of course we are still closely monitoring" - Mr. Powell emphasized.
The above statements were made after the Fed decided to maintain the operating interest rate in the range of 3.50% - 3.75% at the first policy meeting of the year, as predicted by economists. According to CME's FedWatch tool, the market currently does not expect the next interest rate cut to take place before June.
Although Mr. Powell appeared to quickly put aside the historic upward momentum of the precious metal, the gold market also seemed to "ignore" these comments, as the Fed chairman still maintained a relatively neutral stance.
He said that both the risk of inflation and the risk of weakening the labor market have cooled down. "We believe we are in a position to monitor how the economy progresses in the coming time," he said.
However, Mr. Powell also does not completely rule out the possibility that the Fed may raise interest rates again. “Currently, no one considers raising interest rates a baseline scenario, but in the end we will do what we consider right,” he affirmed.
Despite a not yet truly moderate stance, gold prices still maintained a strong increase after the Fed press conference. Spot gold quickly surged, exceeding 5,400 USD/ounce.
Although the Fed's neutral stance may create a certain resistance to gold, many experts believe that this is not a major obstacle. Talking to Kitco News, Mr. Nitesh Shah - Head of Commodity and Macroeconomic Research at WisdomTree, said that although Mr. Powell is willing to keep interest rates stable for the next few months, the market has begun to look further than the May mark - the time Mr. Powell is expected to leave office.
It is highly likely that Mr. Powell's successor will be a supporter of interest rate cuts. And that is exactly what the gold market is aiming for," Mr. Shah said.
The Fed Chairman also gave a rather cautious view of geopolitical risks, saying that although global instability still exists, oil prices have been relatively stable and the US economy is still standing firm against international trade fluctuations.
According to analysts, geopolitical instability is also one of the important factors driving gold prices up to 24.5% in just this month.
