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Gold prices rise, awaiting US data Backed by rising inflation fears

  • 12 October, 2021
  • 2:54 pm EEST

Gold prices rose in trading on Tuesday, supported by rising concerns about inflation, as the sentiment of risk aversion and inflation fears boosted the attractiveness of the precious metal.

This comes despite the gains capped by the strength of the dollar and expectations that the US Federal Reserve will announce a reduction in its bond purchases next month, with inflation expected to push gold prices towards $1800 an ounce.

 

Gold Prices Today

By 08:05 AM GMT (11:05 AM GMT), gold futures contracts, for December delivery, rose 0.11%, to $1,757.60 an ounce.

Spot gold prices also rose by 0.21%, recording $1,757.92 an ounce.

 

Inflation Fears

“This energy crunch continues to dominate market sentiment, as there are concerns that inflation may not be temporary as anticipated earlier, and this supports gold prices,” said Harshall Parrott, senior research advisor for South Asia at Metal Fox.

He added that economic data will be closely watched for the health of the global economy, and that signs of prolonged stagflation could push gold towards $1800.

Inflation fears stemming from the global energy crisis and debt problems in China Evergrande weighed on Asian stocks.

However, gold investors are reluctant to pursue a move higher ahead of the September Fed minutes, said SBI Management Partner Stephen Innes.

“Gold is relatively resilient, and all stocks are pointing to stagflation versus economic growth,” Innes said.
“However, investors are reluctant to continue moving higher ahead of the September Fed minutes,” he added.

“Risks around slowing growth versus rising inflation remain with a sustained strategic allocation of gold amid the backdrop of low interest rates,” analysts at ANZ Research said in a note.

They added that they expect bullion prices to reach $1,850 before declining over the next year.

 

The Dollar And US Bonds

The dollar index, which is moving in reverse with gold prices near the highest level in a year touched last month, amid rising energy prices and expectations that the Federal Reserve will begin to normalize policy soon, which limited the gains of the precious metal.

The benchmark 10-year US Treasury yield reached its highest level since early June, on expectations that high inflation could increase pressure on the Federal Reserve to raise interest rates.

Gold is often seen as an inflation hedge, but lower Federal Reserve stimulus and higher interest rates tend to push government bond yields higher, which translates to a higher opportunity cost of holding non-interest bearing bullion.

Market participants are awaiting the minutes of the September 21-22 Fed policy meeting and the Consumer Price Index, expected to be released tomorrow, Wednesday.

Spot gold may rebound to a range between $1,768 and $1,776, as it managed to settle around a support level at $1,748, according to Reuters technical analyst Wang Tao.

Meanwhile, economists at Goldman Sachs have cut their forecasts for US growth this year and next, blaming a belated recovery in consumer spending.

 

Metal Prices

On the other hand, the price of silver futures contracts, for December delivery, decreased by 0.44%, to record $22.57 an ounce.

And the spot prices for platinum rose by 0.22%, recording $ 1013.49 an ounce, and palladium fell by 0.28% to $ 2,109.29 an ounce, after previously reaching its peak since September 13 last.

European Central Bank chief economist Philip Lane said on Monday that the current wave of inflation in the euro zone is not a catalyst for monetary policy actions, as growth in services prices and wages remains subdued.

A senior executive told Reuters that Russia’s Nornickel, the world’s largest palladium producer, had cut its estimates for a deficit in the global palladium market this year and next, due to the recovery of the auto sector.

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