Gold prices soared to the $1,800 level on Monday as the U.S. dollar weakened. The greenback eased 0.1% and made the yellow metal less expensive and more appealing to investors using rival currencies. Meanwhile, investors are waiting for the U.S. Federal Reserve’s response to inflationary pressures.
Spot gold is currently trading at $1,801.57 per ounce as of 0831 GMT.
On Friday, Fed Chairman Jerome Powell said it is time to taper but not raise interest rates. He explained that there are still five million fewer jobs now than before the pandemic. The central promised to keep the benchmark overnight interest rate near zero until the economy recovered to full employment. Powell also expects the inflation rate to return to normal next year.
Treasury Secretary Janet Yellen agreed and predicted inflation levels to normalize by the second half of 2022. In response to criticism from former Treasury Secretary Larry Summers, Yellen also said that the U.S. is not about to lose control of inflation.
IG markets analyst Kyle Rodda noted a short-term momentum building as investors seek an inflation hedge. In the long term, he believes that gold price movement depends on the central banks’ response to high inflation. If the bullion breaches the $1,800 level, Rodda sees the next resistance at $1,830.
OANDA senior market analyst Jeffrey Halley said the challenge for gold would be to weather the tapering announcement next week. It is likely to push both the dollar and U.S. Treasury yields higher.
Meanwhile, market participants are monitoring the Thursday meeting of the European Central Bank and the Bank of Japan. But analysts do not expect the two central banks to make any changes to their current policies.
On the technical front, Reuters technical analyst Wang Tao predicted that the bullion might test a resistance level at $1,814 per ounce. If it breaks above that level, the yellow metal could climb to $1,826.
DailyFX senior strategist Christopher Vecchio added that the IG Client Sentiment Index indicates that bullion prices have a bullish trading bias. He also mentioned that retail traders are less net-long today than yesterday and last week. It suggests an upward price trend. Recent changes in market sentiment support this trend.
In a related development, the U.S. Commodity Futures Trading Commission reported that market speculators reduced their bullish stance in bold for the week that ended on October 19.