Tuesday, October 26, 2021

Gold price back above $1,800 as Fed prepares to taper asset purchases

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Gold prices surpassed the key $1,800 level on Monday as investors continue to assess the Federal Reserve’s likely response to inflationary pressures after its chair said last week that inflation “could last longer than expected.”

Spot gold gained 0.8% by 11:30 a.m. EDT to trade at $1,807.99/oz, its highest in over a month. US gold futures also rose $0.7% to $1,809.80/oz in New York.

[Click here for an interactive chart of gold prices]

Gold’s rise above $1,800 comes on the back of last week’s rally, which saw the metal at one point hitting its highest levels since early September after Fed chair Jerome Powell said the US central bank should start reducing its asset purchases.

Powell, however, added that talks of raising the short-term interest rate are “premature” as of now.

Gold is often considered an inflation hedge, but reduced stimulus and interest rate hikes tend to push government bond yields up, translating into a higher opportunity cost for the non-yielding bullion.

“There is some short-term momentum building in gold as some investors look for an inflation hedge and see gold as a potentially provider of that,” IG markets analyst Kyle Rodda told Reuters, adding that $1,830 is a key resistance level if gold breaks above $1,800.

In the long term, however, Rodda said gold’s trajectory hinged mainly on how aggressive central banks would act to contain inflation.

In a Bloomberg article last week, mining industry veterans David Garofalo and Rob McEwen predicted that investors will catch on soon that global inflationary pressures are less transitory and more intense than central bankers and consumers price indexes suggest.

As such, gold’s inflation-protection appeal probably will send prices to $3,000/oz when that realization sets in, the former Goldcorp executives said.

(With files from Reuters)

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