The Magazine for Asian Investors
Gold was able to gain on Friday and close just below $1830. In recent months, the gold price was in a wait-and-see position and has mainly moved sideways.
Fed Chairman Jerome Powell has already announced in recent weeks that he intends to start taper as early as this year. Currently, the quantitative easing (QE) measures, which amount to $120 billion per month, are still ongoing.
The prospect of an early taper start has strengthened the U.S. dollar in the short term. Powell indicated that he would not start the taper until the U.S. labor market data corresponded to the target figures.
However, the data released last week disappointed. The U.S. non-farm payrolls had increased by only 235,000, forecasted were 720,000. Whereupon the gold price could neatly increase and the U.S. dollar weakened. It is suspected that the new coronavirus variant could be responsible for the slowdown in economic growth. If the slowdown lasts longer, early tapering could be off the table and loose monetary policy could be maintained. This would keep the U.S. dollar weak and make gold more attractive to holders of other currencies.
Powell also reiterated that tapering need not have any impact on interest rate policy. This would mean that we will continue to have negative real interest rates. That, in turn, would drive the gold price up further.
If real interest rates remain negative in the long term, the gold price could soon rise significantly.