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Gold Prices Are Getting More Expensive, Are You Late?
Gold Prices Are Getting More Expensive, Are You Late?
Friday, 23 July 2021

Jakarta, CNBC Indonesia - World gold prices moved up in trading this morning. The speech of the Chairman of the Federal Reserve of the United States (US) Jerome 'Jay' Powell before Congress gave power to the price of the precious metal to head north.


On Friday (16/7/2021) at 07:26 WIB, the world gold price on the spot market was recorded at US$ 1,829.94/troy ounce. Slightly up 0.04% compared to the previous day.


This week, the price of gold really sparkled. In the past week, prices rose 1.53% on a point-to-point basis.


Today, the increase in gold prices was caused by the correction experienced by the US dollar. At 07:33 WIB, the Dollar Index (which describes the greenback's position against six major world currencies) was down 0.07%.


Last night until the early hours of Indonesia time, Powell gave a presentation before the Senate Banking Committee. Powell reiterated that the inflationary pressure experienced by Uncle Sam's country was only temporary, a consequence of the economic recovery after the Covid-19.


"We are experiencing a revival. Day and night we think, have we taken the right policies? But in general, seeing the rising prices, one of which is used cars, the story is that (inflationary pressure) is caused by the reopening of community activities," said Powell, as reported by Reuters.


However, some members of the Senate disagree. Richard Shelby, a Republican Senate member from Alabama, emphasized that inflationary pressures are a very real threat.


"In the 1970s, high inflation hit people's purchasing power because of the continuous increase in the prices of goods and services. If we fail to take this seriously, then this country will face the same problem," said Shelby, as quoted by Reuters.


Meanwhile, Sherrod Brown, a Senate member from Ohio from the Democratic Party, asked Powell to really look at the side effects of loose monetary policy. The purchase of securities (quantitative easing) does create abundant liquidity, but banks are still reluctant to use it to channel credit to businesses and households.


"Banks take advantage of the Fed's policies to increase their stock prices. Over the past four years, regulation on Wall Street has been getting weaker and that worries me," said Brown, also quoted by Reuters.


However, Powell insists that a loose monetary policy is still needed because maximum employment has not yet been created. Therefore, the Fed will not be in a hurry to change its policy stance.


"We will use all available instruments to bring inflation back down. It would be a mistake if we act too quickly," said Powell.


Powell's calm, dovish tone indicates that quantitative easing and low benchmark interest rates near 0% will persist for some time to come. This makes the US dollar short of 'doping' for the mighty.


The weakening of the US dollar was used by gold to strengthen. These two assets do have an inverse relationship. When the US dollar is sluggish, the price of gold will rise.


This is because gold is an asset priced by the US dollar. When the US dollar depreciates, the price of gold will be cheaper for investors holding other currencies. The demand for gold will rise, and the price will also rise.


"Powell's speech last night gave an indication that the current conditions are not right for tightening or at least reducing the stimulus level even though the inflation data released earlier was quite convincing. Gold prices managed to break through the resistance zone at US$ 1,815/troy ounce yesterday which is currently the zone closest support.


"Now, the nearest resistance zone for gold prices is in the range of US $ 1,830/troy ounce and the furthest resistance is at the USD1,840-1,850/troy ounce. While the furthest support level will be in the range of US $ 1,800-1,790/troy ounce," said Nikolas Prasetia, Research & Development Indonesia Commodity & Derivatives Exchange (ICDX), in his research.

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