Gold prices are currently moving sideways in a tight range as traders await a fresh fundamental spark to ignite the precious metals next big move.
The biggest market-moving event that traders will be closely monitoring this week is the outcome of Fed Chair Jerome Powell’s two-day testimony before Congress starting on Wednesday.
When the Federal Reserve released its semi-annual report on monetary policy to Congress last Friday, one sentence stood out in the 70-odd-page document.
The U.S central bank’s commitment to break the back of inflation by “Any Means Necessary”, policymakers wrote, in their most emphatic pledge to date to tackle the most acute inflation problem in over 40 years.
While that promise eliminated any doubt of the Fed’s overarching priorities, it also suggested that the economic recovery since the depths of the pandemic might now need to be sacrificed in order to fulfil that goal.
Powell will have to contend with these queries on Wednesday, when he faces U.S lawmakers for the first of two congressional hearings on the state of the economy and to shed more light into the Fed's plan to curb inflation.
His testimony comes at a watershed moment not only for the U.S central bank – which last week announced an unusual last-minute switch to a “super-sized” rate hike – but also the White House, which is trying to manage expectations of a slowdown in economic growth and the labour market heading into November’s mid-term elections.
Declaring that it’s essential to tame inflation, the Federal Reserve raised interest rates by 75 basis points last week – the biggest increase since 1994 with Fed Chair Powell signalled yet another jumbo sized hike next month.
There is no denying that it’s been a sharp turnaround for Powell, who is widely credited with preventing what could have been a far worse economic crisis during the pandemic and who last month won an easy bipartisan Senate confirmation for a second four-year term.
Now, as he confronts chronically high inflation, plunging financial markets and the growing threat of a recession, Powell is facing questions – and criticism – surrounding his stewardship of the Fed at a time when its challenges are multiplying.
Thanks to a once-in-a-century pandemic, the first major European war in decades and soaring gas and food prices that the Fed has limited power to affect, Powell could become the first Fed Chair since Paul Volcker in the early 1980s to plunge the economy into a deep recession.
With inflation running out of control, the only plausible option left now is for the Federal Reserve to continue raising rates aggressively until policymakers break inflation, but this may also come at the risk of breaking the economy.
Right now, Gold prices are trading sideways in a tight range, which ultimately indicates a big move is on the horizon. The only question now, is which way.
Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:
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