Speaking at the European Central Bank annual conference in Sintra, Portugal today Chairman Powell made it clear that the Federal Reserve was committed to reducing inflation even if it means raising interest rates to levels that put economic growth at risk.

Both spot gold and gold futures closed lower on the day. However, in both cases, there was fractional buying bidding the precious yellow metal higher as well as dollar strength taking away all of those gains. Spot gold as seen through the Kitco gold index at 3:56 PM EDT, was fixed at $1819.60.

Analysts and investors are waiting for two critical government reports due out on Wednesday and Thursday of this week. On Wednesday the Bureau of Economic Analysis (BEA) will release its latest numbers on real GDP which will be followed on Thursday by the PCE for May 2022.

Chairman Powell’s testimony before Congress this week painted a dire economic outlook which will include the continued contraction of the national GDP coupled with continued interest rate hikes.

Now in his second day of testimony Chairman Powell continues to address the exceedingly high level of inflation and the Federal Reserve’s effort to curtail it. Currently, core inflation is running at three times the acceptable target of 2%, and the CPI inflation index at 8.6%.

Whether you describe the underlying cause of recent changes in financial assets as a tug-of-war, double-edged sword, or battle of opposing forces, inflation versus rising rates continues to cause market sentiment to oscillate. Depending on if inflation or rates are the primary focal points of market participants.

Gold continues to trade in an extremely narrow range as the precious yellow metal reacts to two opposing forces: rising interest rates and inflation. However, the recent price declines in gold have been shallow and short-lived at best. Most importantly, gold prices have held above a key support level which is Fibonacci based.

Gold traders experienced extreme price volatility beginning with a $70 drop on Monday and Tuesday, higher prices on Wednesday and Thursday, and a final price decline on Friday. This tug-of-war shifted market sentiment causing market participants to concentrate on either spiraling inflation or higher interest rates.

Yesterday’s conclusion of the June FOMC meeting was followed by a statement as well as a press conference by Chairman Powell. The overall message was that they acknowledge the pain that working Americans are experiencing as a direct result of inflation of over 8%. Secondly, they wanted to send a message that they are actively addressing that issue.

The Federal Reserve took the most aggressive action since 1994 announcing that they would raise rates by 75 basis points (3/4%) taking the fed funds rate to between 150 - 175 basis points. Traders and analysts had been factoring in a more aggressive rate hike on Monday and Tuesday following the release last week of the May inflation numbers vis-à-vis the CPI.