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Commodities

Gold prices close higher, as U.S Fed Reserve allows high inflation

The U.S Fed Reserve strategy now permits inflation to rise above its 2% target.

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Dollar, Gold soars above $1850, rises to 9-year high

The precious metal gained over 2% at its last trading session.

This bullish feat in the precious metal resulted to its first weekly gain in three weeks as investors continued to assess the Federal Reserve’s new monetary policy strategy.

Gold futures contract gained  $42.30, to settle at $1,974.90 an ounce.

READ: Gold surges past record high as U.S dollar hits record low

Why Gold prices are up?

The U.S Fed Reserve strategy now permits inflation to rise above its 2% target to make up for the time when inflation was below their targets signaling that a long period of very low-interest rates lies ahead.

READ: Gold prices surge by 17.4% in 2 months due to global economic crisis

Stephen Innes, Chief Global Market Strategist at AxiCorp in a note to Nairametrics, gave vital macros on why gold prices are more likely to keep up its bullish trend. He said;

“With the election approaching, a new Fed policy framework explicitly allows for inflation to moderately overshoot the 2% target to catch-up on previous undershooting, and very depressed US real interest rates, some long-term investors will likely continue to want to diversify away from the greenback.

“Gold should remain bid on dips through to the FOMC actionable meeting in September. Higher US yields remain the biggest threat to the view as September issuance supply looms.”

READ: Now that oil is recovering, when will naira recover?

The yellow metal is now perceived as the safe-haven choice of many investors lately as prevailing macros such as the fragile growth in the global economy and the resurgence of the COVID-19 pandemic continue to be on the headlines.

Quick fact: Humans mainly use gold for making jewelry, wealth preservation, and, industrial purposes such as in the production of electronics.

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However, it is rare enough that many people don’t have it, or have it in minute quantities.

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Humans are emotionally and physically drawn to gold. Hence, it provides a significant store of value. Global Investors buy gold to hedge against inflation.

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Olumide Adesina is a France-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment trading. Follow Olumide on Twitter @tokunboadesina. He is a Member of the Chartered Financial Analyst Society.

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