Powell’s eloquent remarks will return gold to the “original form”.

International spot gold continued to be under pressure at $1317 per ounce in early Asian trading on Wednesday (February 28), and promised to continue on Tuesday (February 27) when Federal Reserve Chairman Jerome Powell testified in Congress Raise interest rates and express confidence in inflation. This triggered the market's speculation that the Fed raised interest rates more than three times this year, boosting the US dollar index and suppressing the price of gold to fall more than 1% on the day. The lowest intraday price hit $1313.26 per ounce, basically reversing the gains in the past two weeks. The Dutch bank pointed out that as the Fed continues to tighten policy, the dollar will rebound, and the price of gold may fall below the $1300 integer mark in the first quarter.

In a written testimony to the House Financial Services Committee in Washington on Tuesday, Powell said that although tax cuts and government spending initiatives have brought additional stimulus to the economy, some of the unfavorable factors facing the US economy in the past few years have become a downwind factor. The Fed can continue to raise interest rates gradually, as the economic growth prospects remain strong, and the latest round of financial volatility should not drag the US economy.

It is worth noting that when asked about the conditions to be met in the hearing question and answer session, the Fed will raise interest rates more aggressively than the expected interest rate increase of 2018 in December last year. Powell replied that his views on the economy. Since the last December, the latest data has increased his confidence in the acceleration of inflation. At the same time, if the Fed’s actions are lagging behind and economic growth is overheated, it will have to raise interest rates more quickly.

The data released this month showed that wages recorded the fastest increase since 2009, and the core consumer price index rose the most since 2005. Although the unemployment rate has fallen, inflation has long been a target that the Fed has failed to achieve, and this has slowed the market's expectations for the pace of interest rate hikes.

Currently, Wall Street banks, including Goldman Sachs Group and JPMorgan Chase, expect the Fed to raise interest rates four times this year. The Fed funds futures contract now digests three full rate hikes this year, compared to 2.8 on Monday. At the same time, federal funds futures suggest that the Fed’s probability of raising interest rates at the March meeting is 97%.

(The market implies the number of interest rate increases in 2018)

As the Powell Congress testified that the hawkish message revealed a violent shock in the overnight financial market, the US benchmark 10-year bond yield rose by about 5 basis points to 2.91% on Tuesday. The three major US stock markets fell more than 1%; the US dollar index rose in a short-term, refreshing the three-week high to 90.51; in addition, spot gold in the New York session expanded more than a day, and hit a two-week low of $1313.26 per ounce. A stronger dollar weakens the attractiveness of gold because gold does not pay interest.

(Gold 30 minutes)

The data shows that COMEX's most active gold futures contract has a volume of 5,283 lots at 21:30 on Tuesday, and the total value of the contract is more than $700 million. Subsequently, COMEX's most active gold futures contract traded at 10,738 lots in 23 minutes from 23:44-23:47 Beijing time, with a total value of more than $1.4 billion.

In other precious metals, spot silver tumbled 1.43% to $16.42 per ounce on Tuesday, hitting a two-week low of $16.32 in intraday trading; spot palladium plunged 2.3% to $1036.97 per ounce; spot platinum fell 1.5% to $984.40 / ounce, hitting a low of $976 in the past two weeks.

Phil Streible, senior market strategist at RJO Futures in Chicago, said that Powell’s tone of speech seems to be slightly hawkish, and it seems natural to raise interest rates. He added, “The recent market volatility has not changed the Fed’s policies, so the dollar has risen and affected most markets, including gold.”

ABN Amro commodity strategist Georgette Boele said, "Some investors originally expected Powell's speech tone to be less hawkish, which is the reason for the fall in gold prices on Tuesday."

He pointed out that "once investors realize that monetary policy will continue to maintain the status quo, then the dollar should rebound and the price of gold will go down. Once such a warehouse is completed, the market will see euro longs and gold bulls profit-taking." Boele expects gold prices to fall below $1,300 by the end of the first quarter.

FXTM research analyst Lukman Otunuga said on Tuesday that the market is expecting a higher interest rate hike in the US, which makes gold prices vulnerable to injury. Investors should remember that gold is a zero-yield asset that may remain depressed and unpopular in high interest rate environments.

In terms of physical gold demand, data released on Tuesday showed that in January of this year, China’s net gold import volume, the world’s largest gold consumer, increased by 65.2% from the previous month. But last week's data showed that India's gold imports, India's second largest consumer, fell 22% in January.

Capital Economics commodity economist Simona Gambarini said that although India's gold demand is expected to pick up this year, it is doubtful that the Fed tightens monetary policy and whether high consumption in India and China is enough to offset the decline in investment demand elsewhere. . Therefore, it is believed that the price of gold will fall from the current level.

On the technical side, Forex.com technical analyst Fawad Razaqzada wrote that the price of gold is currently trading near $1,315, so it is below the 50-day average ($1,323) and the 38.2% Fibonacci level ($131.65). If the selling pressure continues, then the next stop for gold may be around $1,300, because there is no important support beyond the key long-term psychological barriers. If it falls below $1, the next potential support will be $1,286. This level marks the intersection of the 61.8% Fibonacci level and the 200-day moving average.

Different sounds!

Of course, not all institutions are pessimistic about gold. Despite the crit of gold on Tuesday, Michael Howell, general manager of research firm Crossborder Capital, remains optimistic. He said that in the short term, further tightening of US monetary policy will have a negative impact on the gold market, but lower prices may represent long-term buying opportunities.

He said: "We believe that the US dollar and US debt are overvalued. The rate of return must rise. For gold, this is a good long-term environment. We have been telling customers to buy gold on dips because the price of gold is within 18 months. It will go higher. In general, the entire financial background is good for gold."

Ole Hansen, head of commodity strategy at Saxo Bank, said, “We are still optimistic about the gold outlook, but will use the current water level to reduce risk exposure, waiting for the price of gold to fall back to $1,300 per ounce, or to break through $1,375 per ounce. Re-enter the market."

Hansen also said, “Our optimism stems from the belief that as inflation rises, inflation will gain more attention and geopolitical risks are still rising, as emphasized at the Munich Security Conference, world leaders The mistrust has increased. The market does not like the uncertainty brought about by the US president. Investors may continue to seek tail protection to guard against the risk of adjustments in other asset classes, especially stocks and bonds, but it may also be Encrypted currency."

Davis Hall, global head of foreign exchange and precious metals business, pointed out that “Gold has performed very well against the US dollar in the past two years and will perform very well this year. At present, the price of gold is very high in the range of 1315-1285 USD/oz. Attractive admission is done at a high level."

Hall believes that gold may once again try to explore all the highs, as the market gradually combines inflation, unresolved record debt levels and the central bank’s reluctance to hold loose monetary policy in the coming months, and is expected this year. The price of gold will fluctuate within the range of $1,270-1,470 per ounce.

BlackRock investment strategist Tushar Yadava said gold investors should not be disappointed in 2018. As a hedge against portfolio hedging and pressure signs, gold's performance is exactly the same as advertising. Gold is bringing diversity benefits and has already done so, especially through the volatility of the past few weeks.

In the downturn of the market, gold is usually a portfolio hedging tool, and the recent callback is no exception. When the market adjusts more widely or lasts longer, the hedging effect of gold will increase.

According to the World Gold Council, the recent stock market sell-off is a good reminder that gold can pay off and reduce the risk in the portfolio.

Proofreading: Sarah

(Editor: Liu Xiaoman HF108)