Gold finally touched $1,800 again as gold futures had their best weekly gain in five months. The gains come as U.S. Treasury yields and the dollar got hit with a modest dip.
Many analysts anticipate that the pullback in yields is temporary, as the Fed is set to kick off the tapering of monthly purchases of government debt and mortgage-backed securities. “Although the yellow metal has attempted to rise, the momentum is insufficient to achieve significant gains as Treasury yields continue to surge as investors expect tapering to begin in 2021,” wrote Naeem Aslam, chief market analyst at Oanda, in a research note.
The minutes of a Fed meeting reveal plans to reduce asset purchases by $15 billion per month starting in mid-November. They also show that the 18 Fed policymakers were divided on the question of inflation, with some seeing risks of elevated inflation in 2022, and others seeing this year’s rise as transitory.
In a note to clients, Ian Shepedson, chief economist at Pantheon Macroeconomics, said, “A quick resolution either way is very unlikely. Uncertainty will persist for some time.”
Inflation and stagflation jitters are persisting, but tapering expectations have been cutting off a big rally for gold. The yellow metal is traditionally viewed as a hedge against inflation. “Given how the stagflation talks continue to drain global sentiment and promote risk aversion, this could support gold bugs,” said FXTM analyst Lukman Otunuga.
Saxo bank analyst Ole Hansen said to Reuters, “gold is attempting a small upside break, but there’s not much in terms of momentum in the the price action. If the CPI data surprises to the upside, and there’s little bit more volatility in stock market, then it could be a supportive factor for gold.”
Gold tends to surge when investors come to grips with inflation conditions. It could still serve as a potential value buy now, while tapering expectations keep its price muted. Investors can find exposure to physical gold bullion through the Sprott Physical Gold Trust (PHYS). Sprott also offers actively managed precious metals mining ETFs: the Sprott Gold Miners ETF (SGDM), which tracks gold majors, and the Sprott Junior Gold Miners ETF (SGDJ), which tracks junior gold miners.
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