Gold Price Analysis: XAU/USD rallies modestly as Powell plays down taper talk

• XAU/USD prices have risen to around the $1850 mark in recent trade, amid a choppy but broadly weaker USD.
• Though Powell was an important event, the main event in the eyes of the market is coming during Friday’s early Asia Pacific hours.

XAU/USD prices have risen to around the $1850 mark in recent trade, amid a choppy but broadly weaker USD. At present, gold trades higher by about 0.2% or just under $5. Lending support to the precious metal was dovish-sounding remarks from the Chairman of the Federal Reserve Jerome Powell, as well as a mild pick-up in inflation expectations.

Biden fiscal stimulus plan incoming

Though Powell was an important event, the main event in the eyes of the market is coming during Friday’s early Asia Pacific hours; US President-elect Joe Biden is expected to unveil fiscal stimulus plans at around 00:15GMT. CNN reported during Thursday Asia Pacific hours that he would unveil a larger than expected $2.0T bill, which another report said will include significant child benefit spending. However, separate reports allege that Biden will look to make a deal with the Republicans (indeed, he will need 60 votes in the Senate to pass his bill), rather than trying to force something through that they do not like. The Republicans are highly unlikely to support a $2T package, but markets are likely to still be quite sensitive to the announcement.

Powell recap

Fed Chair Powell spoke in a public video call with a Princeton University professor and spent most of the conversation justifying why the Fed has acted as it has with regards to policy and not really adding anything new that was not already known.

Numerous Fed members have spoken recently on the topic of the Fed perhaps moving towards a tapering of the pace at which it buys assets in the secondary market debt markets. On this subject and also in reference to the taper tantrum of 2013, Powell said that the bank needs to be careful about how it communicates about asset purchases, said that any tapering is still a long way off and when the Fed does finally decide it wants to move towards tapering off asset purchases, this will be flagged well in advance.

Thus, Powell pushed back against any outside expectations that the Fed might seen move towards tapering, which ought to ease any concerns for now. Powell’s broadly dovish tone has not had much of a market impact, but does appear to have assisted gold. Precious metals do well when central banks indicate dovishness with regards to QE, as QE is an expansion of the money supply, which can to inflation, against which precious metals like gold as seen as a hedge.