Concerns over a drawn-out recovery process are surfacing as the coronavirus pandemic is flaring up yet again in parts of Asia.
Spot Gold Prices Up By 0.2%
Spot gold prices rose as much as 0.2% to $1,870.73 an ounce. This is the highest price that gold registered since February 1, when it commanded $1,868.10.
In addition, other precious metals such as silver, palladium, and platinum gained as well.
According to Commerzbank AG analyst Carsten Fritsch, gold is picking up again this month. In fact, investor interest in gold went up when it broke the psychological barrier of $1,800 earlier this May.
Its current gains are now beyond its 200-day moving average. Ole Hansen, head of a commodity strategy at Saxo Bank A/S, said earlier that prices could breach $1,878 once it surpasses the expected resistance at $1,858.
Turnaround for Gold
As gold prices reached a three-month high, signs are pointing that investors are once again looking at precious metals. In fact, hedge fund managers increased their long-only position in US futures and options by 12% a week ago.
According to government figures, this is the most investors made since June last year. Also, Bloomberg data show that ETF investors bought bullion for the past six sessions after months of sales.
It helped that the dollar fell even as the Federal Reserve confirmed it will keep interest rates low despite inflation rates creeping up.
With the market expects a further increase in consumer prices, gold will increase in popularity as a hedge. TD Securities issued a note that said “Following months of outflows, returning speculative interest could ultimately spark a breakout” in gold.
Inflation Is Transitory
Agreeing with the Fed, TD analysts expect the high inflation period to remain transitory. High inflation showed up in last week’s consumer- and producer-prices reports.
Despite the confidence, TD said that “there remains a substantial amount of uncertainty surrounding the path for inflation. Nonetheless, considering that gold is underperforming against periods of high inflation, we see substantial upside risks for the yellow metal.”
This Wednesday, the Federal Reserve will release minutes from its April meeting. Analysts will sift through the notes to look for potential clues on how the recovery will proceed. They also want a more definite description of how the Fed defines “transitory” as it relates to inflation.
US Jobs Report Shows Recovery Still Ongoing
Fed Vice Chair Richard Clarida said Monday that much weaker-than-expected US April jobs report showed that the US economy is still far from a complete recovery.
It has yet to reach the threshold to hold off bond purchases. At the same time, Fed Bank of Dallas President Robert Kaplan said supply and demand imbalances will continue to fuel inflation. However, he expects price pressures to ease in 2022.
If gold prices continue to rise, the metal will eventually erase this year’s decline. Recent inflows into bullion-backed exchange-traded funds are showing renewed investor sentiment.
John Feeney of Guardian Gold Australia noted that inflation is making an effect. “It seems inflation fears are finally translating into higher precious metals prices.
ETF investors are starting to swing into net buyers again, after the recent consolidation, and it makes sense for the metals to play catch up to the recent moves higher in other commodities.
We also have a lot of uncertainty with Covid-19 strains and mutations in the Asia-Pacific region that would be leading to safe-haven buying,” he observed.
Watch the City News Toronto Business report: Inflation data due out this week, the gold price at 3-month high:
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