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Gold Takes Up Holding Pattern Before Powell Siezes Center Stage

(Bloomberg) — Gold steadied as investors counted down to testimony from Federal Reserve Chairman Jerome Powell on the central bank’s next steps to combat the hit from the coronavirus pandemic.

Powell, who delivers his semi-annual policy report Tuesday and Wednesday, is expected to echo the downbeat view he gave June 10 after policy makers signaled rates would probably stay near zero. Earlier, bullion got a lift from concerns over new outbreaks in the U.S. and China, plus a weaker dollar.

Bullion has rallied this year as the pandemic triggered an unprecedented wave of stimulus, bolstering the haven’s appeal. On Monday, gold pared a drop after the Fed said it will begin buying individual corporate bonds, and expanded a lending program. On Tuesday, the Bank of Japan revised the estimated size of its virus-response measures, while the Reserve Bank of Australia said the nation’s economy is likely to need policy support for some time.

“Gold has bounced back today amid a choppy U.S. dollar and as the Fed’s latest measures further highlight commitment by the central bank to take all possible measures,” said Madhavi Mehta, an analyst at Kotak Securities Ltd. “Fed Chairman Powell’s testimony is also likely to reflect the same.”

Spot gold was little changed at $1,726.03 at 7:51 a.m. in London after earlier rising as much as 0.5%. So far this year, bullion has climbed 14%. The Bloomberg Dollar Spot Index fell 0.2%, set for a back-to-back decline.

In addition to monetary easing, governments around the world have stepped up their fiscal response. In the latest move, the Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the world’s largest economy, according to people familiar with the plan.

China Outbreak

On the coronavirus front, China ramped up mass testing to determine whether a new outbreak in the capital warrants the same kind of strict lockdown seen earlier this year. U.S. Vice President Mike Pence discussed rising coronavirus cases in a call with state governors.

“The biggest challenge for gold is whether U.S. and global economies will reimpose lockdowns again if there is a major surge,” said Mehta. “Unless there are fresh restrictions, gold may struggle to build on the upward momentum.”

Separately, investors were tracking events in the Koreas. North Korean state media said Kim Jong Un’s regime is reviewing a plan to send its army into the demilitarized zone separating the country from the south. The announcement follows rising tensions with Seoul.

In other precious metals, silver fell 0.4%, platinum was little changed, and palladium gained 1.5%.

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