Gold futures rose on Friday, but bullion closed below its best levels today after comments from Federal Reserve Chair Jerome Powell that raised the possibility that the central bank will soon start slowing or reducing its monthly bond purchases.
The comments offset some of gold’s previous support from concerns that rising inflation in the wake of COVID-19 could erode purchasing power.
Powell said on Friday that high US inflation readings are likely to continue into next year and that the central bank is alert to the risk that consumers will begin to anticipate higher inflation. He also said it was time to “cut back” the US$120 billion in monthly asset purchases by the Federal Reserve. Central Bank policy makers will hold their next meeting on November 2-3.
Gold gave up much of its gains early Friday after Powell’s comments about reducing his bond purchases, Shintan Karnani, director of research at Insignia Consultants, told MarketWatch.
Powell also said that inflation will be longer than previously expected and that monetary tools will be used if inflation rises for longer than expected. He also said that the US labor market may continue to improve until it reaches its “maximum job opportunity” next year, and if that happens, it will remove what is likely to be the last major hurdle to any rate hike.
Karnani said that traders were “expecting an indication” of a rate hike after the tapering. Gold fell from its highs “due to a combination of profit taking and technical selling at the weekend” after the Federal Reserve Chairman’s speech.
However, Karnani said that “gold prices are supported by inflation concerns,” adding that the Russian Central Bank has raised interest rates to counter inflation.
He noted that in the next two weeks, the main central bank meetings will include the Bank of England, the European Central Bank, the Bank of Japan and the US Federal Reserve.
Karnani said he does not expect any surprises from the Fed as “everything has been clarified” in light of Powell’s speech on Friday.
December Gold GCZ21,
It rose $14.40, or 0.8%, to settle at $1,796.30 an ounce, after trading as high as $1,815.50 during the trading session. With that said, gold rose during the week by 1.6% and posted its fourth weekly gain in five weeks, according to market data from Dow Jones. It was the biggest weekly rise for the most active contract since the period ending August 27.
Silver Dec 21,
It finished 28 cents, or roughly 1.2%, up at $24.449 an ounce, also down from a session high of $24.92. Over the course of the week, silver is up 4.7%, its best weekly gain since the weekly extension ended May 7.
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Gold and silver are “bolstered by mounting concerns about problematic price inflation and a decline in the US dollar index to end the trading week,” Jim Wyckoff, chief analyst at Kitco.com, said in a daily note. Gold is often seen as a hedge against rising inflation.
Wyckoff said the gold and silver markets have “finally woken up to the fact that global inflation is on the rise and may not be just fleeting.” “Gold prices have been trending higher since late September, and this week silver prices hit a six-week high.”
“History shows that hard assets like precious metals are becoming more preferred as an inflation hedge when consumer and producer prices are rising,” he said.
However, the value of gold has been somewhat limited since July due to concerns about global growth and inflation, which are bullish for the yellow metal, and rising yields, which could undermine the attractiveness of the non-yielding precious metal.
On Friday, Treasury yields fell, with 10-year Treasury yields TMUBMUSD10Y,
at 1.659%, down from 1.674% on Thursday and the ICE US Dollar Index DXY,
It decreased by 0.1%.
Among other metals traded in comics. Copper Dec HGZ21,
It fell 1.3% to $4,498 per pound, posting a weekly loss of 4.9%.
Jan Platini PLF22,
It lost 0.2% to $1052.10 an ounce, and prices settled down 0.6% during the week, while palladium in December fell 0.9% to $2,035.60 an ounce, a weekly loss of 2%.
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