Not nice, Mr. Powell! Gold prices fell more than 1 percent after your comments as the Federal Reserve’s new chairman. What did you say – and what are the implications for the precious metals market?

As We Warned, Powell Is More Hawkish

We have been alerting investors about the hawkish turn at the FOMC for a long time. For example, in the Gold News Monitor on February 13, we wrote that Powell could move faster on normalization than Yellen, as the macroeconomic conditions have become more favorable. As the Fed Chairman pointed out during his first testimony to the House Financial Services Committee,

While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory.

Exactly. Fiscal policy became more accommodative, the GDP growth accelerated, the U.S. dollarweakened, strengthening the exports. Inflation ticked up and the composition of the FOMC changed and now includes more hawks than in 2017. In such an environment, Powell has no choice but to adopt a more firm position. If such a stance finally manages to strengthen the greenback, gold may suffer.

Gradual Tightening Remains, but…

Surely, Powell will continue the Yellen’s policy of gradual normalization. The most highlighted in media paragraph underlined the balance between allowing the economy to grow more without triggering a bust and preventing overheating:

In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2% on a sustained basis.

Powell also added further gradual increases in the federal funds rate will be the best policy stance. So brace yourselves for an interest rate hike in March and two further increases later this year. At least two. Will gold survive them?