Gold Price Plunges Nearly $40 After Powell's Hawkish Turn

On Tuesday (November 30), gold prices were significantly pressured and fell sharply due to unexpectedly hawkish remarks from Federal Reserve Chairman Powell, erasing gains of over 1% that had resulted from concerns over the Omicron variant.

In late US trading, spot gold closed at $1773.97 an ounce, down $10.51 or 0.59%. Earlier in the day, it had reached a high of $1808.41, but quickly plunged nearly $40 to a low of $1769.73 under pressure from Powell's testimony.

COMEX February gold futures fell 0.5% to settle at $1776.50 an ounce, with the main contract falling about 0.4% in November.

Data shows a large number of sell orders emerged instantly: On the COMEX, the most actively traded gold futures contract saw 2617 lots traded in one minute at 23:36 Beijing time on November 30, with a total contract value of $470 million; 2611 lots traded in one minute at 23:38, with a total contract value of $468 million; 2893 lots traded in one minute at 23:52, with a total contract value of $517 million; 2106 lots traded in one minute at 23:59, with a total contract value of $376 million; 4467 lots traded in one minute at 00:01 on December 1, with a total contract value of $793 million; and 3040 lots traded in one minute at 02:29, with a total contract value of $540 million.

Earlier, Moderna CEO Stephane Bancel warned that COVID-19 vaccines may not be as effective against the new variant, causing gold prices to rise 1.3% at one point.

Bancel told the Financial Times that he expects existing vaccines to be less effective against this new variant. The CEO said the effectiveness of current vaccines against this mutation could see a "substantial decrease." He told CNBC on Monday that it could take months to develop and distribute a vaccine targeting Omicron.

Subsequently, Federal Reserve Chairman Powell testified before the Senate Banking Committee, stating that the Fed may discuss accelerating the reduction of its large-scale bond purchases at its next meeting. The market's concerns that Powell might adopt a more hawkish stance after his renomination appear to have been justified.

Powell said during a Senate committee hearing that he believes the pace of balance sheet reduction could be faster than the $15 billion per month announced earlier this month. He hopes to discuss this at the December meeting.

He stated: "Currently, the economy is very strong, and inflationary pressures are higher, so it seems appropriate to me to consider ending the asset purchase reduction program...perhaps a few months earlier." "I expect we will discuss this at the upcoming meeting."

Since the November Federal Open Market Committee meeting, more data has shown inflation is at its highest level in over 30 years.

Federal Reserve officials have long insisted that inflation is "transitory," a word Powell defined as not having a lasting impact on the economy. The word appeared in the post-meeting statement, but Powell said today it may no longer apply.

"The word transitory means different things to different people. To many, it carries a sense of short-lived. We tend to use it to mean it won't leave a permanent mark in the form of higher inflation. I think it may be time to retire that word and try to explain what we mean more clearly."

Powell's remarks boosted the dollar, putting pressure on gold, which quickly fell nearly $40.

Edward Moya, senior market analyst at OANDA, said, "Everyone was a bit surprised when Powell came close to a hawkish stance." He added that the Fed may raise interest rates at a faster pace.

Gold is used as a hedge against inflation, but rising interest rates increase the opportunity cost of holding gold.

But Moya added that in the long term, concerns about the virus variant will support gold prices.

The fall in gold prices coincided with a sharp drop in US stocks. Powell's suggestion that the US would accelerate its policy tightening hurt risk sentiment, which was already under pressure due to concerns about Omicron.

Other precious metals also fell: spot silver fell 0.29% to $22.82; spot platinum fell 2.91% to $935.15; and spot palladium fell 3.05% to $1741.29.

Bank of America Global Research said in a report that looking ahead to 2022, increased investment in solar panels should boost silver's performance.

Future Outlook

1. Todd Horwitz, chief market strategist at BubbaTrading.com, wrote that gold, silver, and platinum still have room to fall as the year-end approaches. The sharp declines on Friday, Monday, and Tuesday have caused significant technical damage to the charts.

Horwitz points out that the next support level for gold is $1750; if it breaks below that, it will fall further to $1700. If you've watched the market for a while, you'll find that everything is based on probability, and most of the money is made in trend trading. It's possible to get out of congestion, even though the trend was higher at the time.

2. Daniel Briesemann, analyst at Commerzbank, said: "The main reason behind the slight recovery in gold prices is, of course, renewed concerns about the new coronavirus variant and the generally higher risk aversion among market participants."

3. Michael Hewson, chief market analyst at CMC Markets UK, said, "It's hard to say how much (Moderna CEO's remarks) will ultimately affect gold prices, as the market is still digesting these remarks." He added that if the stock market falls further, gold prices could break through $1800.