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Gold gains as inflation fears cloud risk sentiment

KEY POINTS
  • Spot gold rose 0.4% to $1,761.41 per ounce by 1159 GMT.
  • U.S. gold futures were up 0.4% at $1,762.40.
Gold bars at Solar Capital Gold Zrt. in Budapest, Hungary on March 10, 2016.
Gold bars at Solar Capital Gold Zrt. in Budapest, Hungary on March 10, 2016.
Akos Stiller | Bloomberg | Getty Images

Gold rose on Tuesday as rising inflationary fears weighed on investors’ appetite for risk and a pullback in U.S. Treasury yields added to the appeal of the non-yielding bullion.

Spot gold rose 0.4% to $1,761.41 per ounce by 1159 GMT, while U.S. gold futures were up 0.4% at $1,762.40.

A global energy crunch has threatened the economic outlook and fanned inflation fears, driving some investors toward safe-haven assets.

“There’s more risk aversion in the market and gold is benefiting from that, coupled with concerns about inflation and cooling of the global economy,” Commerzbank analyst Daniel Briesemann said.

If stagflation talks come to the fore increasingly that should help gold clock $1,900 by year end as interest rates should remain relatively low even if the Fed starts tapering, Briesemann added.

Gold is traditionally seen as an inflation hedge. However, reduced central bank stimulus and interest rate hikes tend to push government bond yields up, translating into a higher opportunity cost for holding gold that pays no interest.

The benchmark U.S. Treasury yields pulled back after touching their highest since early June. The dollar index , on the other hand, was largely steady.

While the talk about stagflation is “little bit positive for gold,” an eventual Fed tapering “is really a threat and the risk is currently more to the down than to the upside”, said Quantitative Commodity Research Analyst Peter Fertig.

“As long as you have the risk of rising opportunity costs and a firmer U.S. dollar, gold is not attractive for longer term holding.”

Focus is on minutes of the Fed’s Sept. 21-22 policy meeting and the consumer price index, both due on Wednesday.

Spot silver rose 0.1% to $22.58 per ounce and platinum was 0.1% higher at $1,008.89.

Palladium was little changed at $2,112.91.

This post from CNBC

REFERENCE:

https://www.cnbc.com/2021/10/12/gold-markets-dollar-federal-reserve.html

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