Fed allays market fears, which is not good for gold, notes Fiona Cincotta.
Gold is extended losses for a second straight session on Wednesday, after no surprises from Federal Reserve Chair Jerome Powell’s testimony before Congress and as fears surrounding Coronavirus show signs of easing.
Gold fell in the previous session, not owing to Powell’s well-rehearsed, cautiously optimistic assessment of the U.S. economy, but more likely due to that he showed few signs of being moved by the outbreak of Coronavirus.
On the economy
Powell said that that he though the U.S. economy was in a good place; he highlighted the strong labor market and consumer spending. He added that he could not see any reason why the current expansion of the U.S. economy couldn’t continue, and that monetary policy was appropriate at its current level. His comments meant that near-term expectations of a rate cut were slightly reduced, which would have added some pressure to non-yielding gold.
Powell undeterred by Coronavirus
However, possibly of more interest to goldbugs, was that Powell said that the outbreak of the virus has done little to alter the expected path of U.S. interest rates. While the Fed will keep an eye on the outbreak and its impact on the Chinese economy and the economies of its trading partners, it doesn’t see it as a baseline outlook of the U.S. economy or interest rates changing.
Coronavirus spread slows
Risk appetite is also rising as the number of new cases of coronavirus in the Hubei province, the worst affected area, was at the lowest level for a month. Additionally, top medical expert Zhong Nanshan has speculated that the virus could peak this month. The markets have responded optimistically. Riskier assets are back in favor while safe-haven assets like gold are declining.
Gold Levels to watch
On the one-hour chart, the uptrend in gold is still intact. There is trendline support at $1,557, which coincides with the 200-hour moving average.
Immediate support can be seen at $1,562 (Wednesday’s low) prior to $1,558 and $1,555 (trendline support).
On the flipside a move above resistance at $1,577 and $1,580 could confirm the bullish trend remains intact.
Fiona Cincotta is a Market Analyst for Currency Live
