Gold Price: What to Expect from a Powell-Led Fed

If the modus operandi of the Federal Reserve these days is to keep the status quo, it appears that Jerome Powell—President Trump’s pick to succeed Janet Yellen as chair of the Fed—won’t rock the boat. That could be good news for markets that are looking forward to a strong holiday season and potential tax cuts as reasons to plow forward to new highs. But what should we expect from Powell based on what’s occurred so far, and how will it affect the gold price?

Powell Testifies Before Congress

When testifying before the Senate Banking Committee just yesterday, Powell presented himself as someone who wouldn’t rock the boat, so to speak. According to the New York Times, Powell not only defended the Federal Reserve’s recent strategy in handling financial regulation, but pledged to keep the policy moving forward. As some might expect, the markets kept moving forward without a blip, pushing to higher and higher marks. It’s possible the financial news would look different if Powell looked like someone who wanted to stop the gravy train.

Powell also pointed to the potential raise in interest rates come December, which is coming sooner and sooner, just a few short weeks away now. The markets have long “priced in” these rate hikes, so there may be little cause for any turbulence in stocks, but it’s always possible that an unforeseen catalyst will turn things on their head.

The Future of Monetary Policy

All indications point to Powell being very much like Janet Yellen in his approach to Federal Reserve regulations and interest rates, which suggests a cautious approach to raising interest rates. This has generally been bad news for gold bugs, who believe that the markets aren’t only sending false signals but that the Federal Reserve has to be stricter in its approach to interest rates.

With Powell soon to be at the helm of the Federal Reserve, there may be little that changes about this, which points to a maintenance of the Yellen-era status quo.

Gold Poised for a Breakout?

Although gold briefly flirted with numbers into the $1,300 per troy ounce range early this week, it’s slightly down this morning as the Dow Jones Industrial Average continues to surge upward. And while some point out that gold’s trading has been relatively calm this year—especially compared to the year of geopolitical headlines we’ve seen—the overall price of gold is still up by about 12% on the year, which is a solid rate of return, especially considering just how well stocks have performed.

Michael Dudas of Vertical Research told CNBC that gold could hit $1,400 in 2018, which would represent another strong rise for the yellow metal. Even with tax reform passing—which would probably a good indicator for stronger markets—Dudas believes that the long-term trend in gold is upward, especially getting through 2017 and into 2018. If little else changes—and the policy at the Federal Reserve does not appear ready for a change—it’s possible early 2018 will look a lot like 2017.