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Powell says Fed remains in dovish mode

Fed Chair Powell testified before a House Committee and reiterated the Fed’s dovish commitment for the next couple of years. The overall takeaway from Powell is that over the next couple of months he will just keep singing the same dovish commitment song.  Until we see more than half of the 10 million jobs come back, Powell won’t change his tune.  Powell is not concerned about inflation, but if Treasury yields, real yields especially, continue to surge he may have to go into the Fed’s toolbox.  Yield curve control chatter might have to wait until the 10-year Treasury yield breaks past 1.50%.

Oil

Crude prices are stabilizing as the relentless commodity supercycle rally takes a break.  It seems the energy market wants confirmation that US stockpiles continue to come down.  The deep freeze which has hit the United States will impact the US production for a couple of weeks, but if US production comes back a little quicker that could be what is needed to trigger a pullback for WTI crude.

Gold steady but remains vulnerable

Gold prices steadied after Fed Chair Powell delivered another dovish message to reassure the markets. Powell pledged that the Fed will move carefully and any changes in policy will be well-telegraphed. Gold is still in the danger zone since Powell did not deliver a response to the recent surge in yields.  Treasury yields can probably go a lot higher before the Fed will step in and that could derail gold’s outlook in the short-term.  Gold will start to attract investors as the Fed will remain dovish for at least the next year or two and as lawmakers are probably within a month of getting Biden’s relief bill passed.  Infrastructure spending and a long fight to regain 10 million jobs suggest the stimulus trade will not go away anytime soon for gold.

By Ed Moya