Inflation Soars, Powell Remains Unmoved. What about Gold?

The CPI surged 5.4% in June, but Powell still sees inflation as transitory. For now, gold has risen under the dovish Fed’s wing amid higher inflation.

Luckily for gold bulls, it seems that the acceleration in inflation won’t change the Fed’s course. Powell downplayed the inflation threat in his yesterday’s testimony to Congress. He continued seeing higher inflation as transitory and said that conditions to trigger a policy shift are “still a ways off.”

As a consequence, the price of gold increased yesterday to above $1,820, temporarily reaching $1,834. It’s not surprising, as an unmoved Fed amid higher inflation is a fundamentally positive factor for the yellow metal.

However, the upward move was very modest given the circumstances, which isn’t particularly encouraging. Investors seem to still believe that inflation is just transitory, and it won’t be a problem for the economy. But the Fed’s tightening cycle will come sooner or later (think about Bank of Canada or Reserve Bank of New Zealand which have already tightened their monetary policies), possibly with some hawkish twists later this year, so gold bulls should remain cautious.