Powell on Watch

Gold prices are hovering near the foot of yesterday’s sell-off ahead of keenly anticipated comments from Fed chairman Powell later today.  The Fed chief kicks off his two-day semi-annual testimony to Congress and traders are hoping for some clues as to the Fed’s latest thinking on monetary policy, particularly given the recent data streak we’ve seen. These semi-annual testimonies can be hit-or-miss in terms of market impact with the most trading-relevant information likely to come in Powell’s opening statement. Given that we will soon be entering the blackout period ahead of the upcoming July FOMC, any surprises from Powell today (a deviation from the view shared at the FOMC) will be very important for determining direction and, consequently, gold.

Inflation Due on Thursday

Along with Powell’s comments this week, traders will also be watching the latest US inflation data due on Thursday.  USD has turned lower in recent weeks amidst an uptick in expectations that the Fed will ease in September, along with growing expectations for further easing beyond that. If we see a fresh drop in inflation on Thursday, particularly if we see a downside surprise, this should drive USD deeper allowing gold to rally near-term. Only an upside surprise in Thursday’s data is likely to help revive the USD rally. If seen, gold prices are likely to tumble in this scenario as traders scale back September easing expectations.

Technical Views

Gold

For now, gold prices continue to range between the 2,275.43 and 2,427.54 levels. Price is currently stuck around the 2,365.93 level following yesterday’s sell-off. Given the broader bull trend, focus is on an eventual break higher. If we do slip lower, however, the bull channel lows and 2,149.72 level will be the deeper support areas to note.