Gold ended the week bullish and that counts as the third straight weekly gain for the yellow metal. The safe-haven asset has returned above the $1,800 trading zone which is considered a crucial support area. However, the outlook for Gold remained unsure as a result of the uncertainty on how long it will take for the much-touted U.S. inflation to accelerate its gains.
The benchmark gold futures has gained over $40 representing a 2.69% growth, since its last negative weekly close that occurred a month ago, when it declined to a two-month low of $1,761.20. The gains recorded on Gold is a result of a weaker U.S dollar and U.S Treasury yield rate. The pair usually move inversely against the yellow metal.
Since January, gold has been on an undecisive ride. The yellow metal started the year around the $1,951 trading zone and has been on a decline ever since. It reached its lowest point in March, trading at $1,685 but the yellow metal started a recovery bull run to $1,907 in June. This recovery was short-lived when the price of Gold fell by over $140 over the news of the federal reserve’s expedited timetable for rate hikes and stimulus tapering.
The U.S Federal Reserve has indicated that it expects two hikes before 2023 that will bring interest rates within a range of 0.5% to 0.75% from a current pandemic-era super-low of zero to 0.25%. They have also not set a timetable for the tapering or complete freeze of the $120 billion in bonds and other assets it has been buying since March 2020 to support the economy through the Covid crisis.
Even though the Federal Reserve has not set the timetable for tapering, it has not stopped senior bankers from commenting on it at the Federal Open Market Committee (FOMC) meeting, talking about the likelihood of a taper or rate hike in their public speeches. Typically, any speech on tapering or rate hike by a Fed official ends up affecting the price of Gold.
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What they are saying
Ed Moya, head of U.S research at OANDA, an online brokerage firm stated, “Gold is tentatively stabilizing above the psychological $1,800 level and that could open the door for a stronger rebound next week. Yet, there was no certainty about how much impact current inflationary trends in the United States will have on gold, which is generally branded as a hedge against rising pressure prices. Investors will closely await Tuesday’s inflation report and kickoff the earnings season.”
He also referred to the June update for the Consumer Price Index, which hit a 13-year high of 5% in the 12 months to May.
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What to expect
As the inflation rate picks up, investors would expect the price of Gold to appreciate but all scenarios are possible as the Federal Reserve’s decision around asset tapering will determine the U.S inflation outlook for the rest of the year. Gold is an asset that is said to be a hedge against inflation but so far, the U.S stock market has been breaking all-time highs, which is more attractive to investors.
To mention, other countries are acquiring Gold. Central banks from Serbia to Thailand have been adding to their gold holdings. Also in Ghana, the country recently announced plans for purchases, as the worry of accelerating inflation looms and a recovery in global trade provides the firepower to make purchases. If other countries follow this trend, price appreciation for Gold is set to happen.
Gold is trading at $1,808.55 an ounce, gaining approximately 1.42% for the week.