Gold Bounces Back on Rising Inflation Risks

Gold Bar

Gold prices recovered on Monday after dropping to a one-week low on Friday. The rising inflation risks bolstered the bullion’s appeal by keeping U.S. Treasury yields low. The 10-year Treasury Inflation-Protected Securities was steady at -1.111%. It lowered the opportunity cost of owning the non-interest-bearing metal. The weaker dollar also supported the yellow metal. The greenback recoiled from Friday’s high and made the bullion metal less expensive for investors using rival currencies. But concerns over the Federal Reserve’s tapering timeline limited gold’s gains.

Spot gold is currently trading at $1,843.25 per ounce as of 0801 GMT.

On Friday, gold prices fell to their lowest level since November 10 on Federal Reserve Vice Chair Richard Clarida’s remarks. He suggested accelerating the pace of tapering and discussing it at the central bank’s December meeting. Federal Reserve Governor Christopher seconded Clarida’s suggestion. He wanted the Fed to double up on the wind-down of asset purchases to finish it by April. Waller also floated the idea of raising interest rates in the second quarter of 2022.

In Europe, Bundesbank President Jens Weidmann struck the same tone. He warned the European Central Bank (ECB) to avoid any commitment to keep the money taps open. Higher wage growth and higher inflation expectations could strengthen prices pressures in the medium term, he explained.

Meanwhile, market participants are monitoring developments that could influence the movement of gold prices. These include President Joe Biden’s appointment of a new Fed Chair and the return of COVID-19 restrictions in some parts of Europe.

In physical trading, higher prices dampened gold demand in major Asian hubs last week. In India, buyers postponed purchases for weddings and jewelers stopped buying while waiting for a market correction. Dealers discounts of up to $2.5 per ounce.

Retail demand in China and Japan also slowed down because of higher prices. In contrast, interest in gold remained strong in Singapore. Investors were buying the yellow metal as a hedge against inflation.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, increased by 0.8% from 976.87 tons on Thursday to 985 tons on Friday. It reflects current market sentiment. The U.S. Commodity Futures Trading Commission reported that market speculators raised their bullish stance in COMEX gold contracts in the week that ended on November 16.