cryptocoin.com As we reported, gold prices lost more than half of their session gains on Friday after Federal Reserve Governor Jerome Powell said he expects inflation to ease next year and that the US central bank is on track to reduce stimulus. Spot gold, after rising as much as 1.7% at the beginning of the session, started to decline and closed the week at $1,792.28, up 0.53%. US gold futures rose 0.81% to $1,796.3 an ounce.
Daniel Pavilonis: Fed won’t do enough to slow inflation and this is where gold will find value
David Meger, director of metals trading at High Ridge Futures, attributes the decline in gold to the Fed Chairman’s comments on how he expects inflation to potentially pick up into next year. The director comments:
However, this is a double-edged sword. Ongoing inflationary pressures in the market will be the main supporting factor for gold and silver in the coming weeks and months.
Jerome Powell stated that the US central bank should start reducing asset purchases soon, but interest rates do not need to be raised yet as employment is still very low. The dollar index (DXY) left its losses behind after the statements of Jerome Powell. Daniel Pavilonis, senior market strategist at RJO Futures, comments:
The only thing everyone is talking about today is inflation. There is a perception that the Federal Reserve is behind the curve and the precious metals market is looking at it. Because the Fed won’t do enough to slow inflation. This is where gold will find its value.
“Despite strong inflation data and stagflation concerns, gold remains sluggish”
While gold is often regarded as an inflation hedge, reduced stimulus and interest rate increases increase the yield on government bonds, raising the opportunity cost of holding non-yielding bullion. Eurozone inflation expectations reaching the highest levels of recent years puts additional pressure on the European Central Bank (ECB). However, the ECB insists on maintaining its crisis-period incentives. Saxo Bank analyst Ole Hansen’s assessment is as follows:
There has been a surge in inflation expectations, which, along with a weaker dollar, has bolstered gold. The precious metal also made another attempt to push $1,800 with this support.
Moreover, Ole Hansen states that growth concerns may reduce the possibility of central banks to be aggressive about interest rate hikes and may help gold as a result, but the sharp recovery in stock markets remains a hindrance.
Meanwhile, Raphael Bostic, Chairman of the US Federal Reserve in Atlanta, said he expects high inflation to continue into 2022 and that the central bank should raise interest rates by the end of next year. However, Citigroup analysts highlight the following in a note:
Spot gold trading remains sluggish despite strong US inflation data and investor growing concerns about the risk of stagflation. A few factors could be driving the weaker bullish trend for gold (compared to 2019 and 2020 for sure).
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