The demand for gold has increased again as the bulls love high inflation. Gold prices rose as US inflation rose to the highest level since 1990. cryptocoin.com As we have previously reported, this also increases the demand for a hedge, as the Fed keeps interest rates low.
Relationship between gold prices and inflation
While rising inflation has been bad news for gold for most of this year, it is now giving a boost to the precious metal’s rise. While bullion is often bought as a way to protect wealth as consumer prices soar, this year’s inflation has weighed on the metal, as investors claim it will spur the Federal Reserve to withdraw major stimulus measures. But fears of out-of-control inflation are adding to gold’s appeal as unemployment soars, with the Fed determined to keep rates low. That was Wednesday’s day for gold to bounce off its 15-month downtrend after data showed U.S. consumer prices rose the fastest since 1990. On Thursday, spot prices rallied as much as 0.9% before cutting some of the gains. Nicky Shiels, head of metals strategy at MKS (Switzerland) SA, said inflation is “not temporary”. Analyst: “It injected some bullish momentum. “This would mean a change from the previous ‘thinking’ as the threat of the Fed’s contraction is gone,” he said.
Gold’s recent rally shows that the Fed, which announced the pace at which the market cut its bond purchases last week, does not expect it to do much more to fight inflation right now. This creates a favorable environment for the precious metal, as inflation erodes bond yields, which are kept under control by stimulus measures, and brightens the appeal of non-interest-earning assets like gold. Gold bullion fell below $1,700 an ounce by mid-August amid concerns over Fed tightening, pushing its 2020 record high decline to nearly 19%. Prices rose 0.6% at 11:18 p.m. in New York, approaching their highest level since June at $1,859.99.
watch out for the fed
Of course, the metal was trading just below a key resistance level before Wednesday’s US inflation report, and some of the gains may have been due to technical buying. Attention is now turning to comments from Fed officials on how they will respond to the pressure. “We expect the Fed to signal a faster contraction at its meeting next month,” said Citigroup Inc analyst Aakash Doshi. Contrary to prices, purchases through exchange-traded funds remain quiet and holdings are close to their lowest level since May 2020. More buying may be needed to keep the latest rally intact.
It’s not just the United States that has seen inflation pick up. The data also shows pressures in China, Japan and Germany are climbing the fastest in decades, and there are signs that are fueling fresh physical demand for gold. Alexander Zumpfe, a senior trader at the refinery company Heraeus Metals Germany GmbH & Co, said: “German private investors have reacted to the recent high inflation rates with increased demand. “We are seeing a significant increase in buying interest in gold bars.”
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