Gold futures finished higher Tuesday, with prices finding support following data showing rising U.S. inflation and dovish comments from a key Federal Reserve member, amid persistent concerns about the spread of the COVID-19 delta variant.
The U.S. cost of living in June saw the biggest climb since 2008, with the consumer price index up 0.9%, exceeding the 0.5% advance forecast by economists polled by The Wall Street Journal.
Gold markets fluctuated significantly after the data release, as investors tried to digest the information, Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund
told MarketWatch. “Inflation was largely contained to industries associated with reopening from COVID lockdowns, which the [Federal Reserve] has taken the stance of calling transitory.”
“Going forward, gold may remain somewhat volatile as markets will likely have a difficult time digesting domestic inflation and reopening data while also considering the potential threats of COVID worldwide,” said Teed, who’s also director of research at Flexible Plan Investments, Ltd.
“Rising inflation should help to support the precious metal as it is seen as an inflation hedge,” said Fawad Razaqzada, market analyst at ThinkMarkets.
Still, high inflation is not necessarily a good thing for gold if it means the Federal Reserve is going to tighten its belt, raising the federal funds rate, he said in a market update.
Last week, “falling Treasury yields and concerns over rising COVID cases offered support” to gold and continue to underpin the precious metal this week, wrote Sophie Griffiths, market analyst at Oanda, in a Tuesday research note.
“A slightly dovish tone from New York Federal Reserve President John Williams, who said that the U.S. economy has not achieved the substantial further progress for the Fed to start reducing asset purchases, is also extending support to gold,” the analyst said.
On Monday, Federal Reserve Bank of New York President John Williams told reporters that conditions for scaling back its $120 billion a month bond-buying stimulus program have yet to be met.
“We set a very clear marker, I think, not a quantitative marker, but a very clear marker that we want substantial further progress [on job market improvement] relative to where we were” Williams told reporters. “That’s where I’m focused, clearly right now we have not achieved that,” he said.
However, the president of the St. Louis Fed James Bullard said Tuesday the Federal Reserve should start reducing the stimulus it provides to the U.S. economy, though he added the reduction didn’t need to start immediately. “I think with the economy growing at 7% and the pandemic coming under better and better control, I think the time is right to pull back emergency measures,” he told the The Wall Street Journal in an interview published Tuesday.
Also Tuesday, San Francisco Fed President Mary Daly said in an interview with CNBC that the strong gain in the U.S. CPI is just a temporary “pop” inflation that won’t last, and the Fed should remain “steady in the boat” with its easy monetary policy stance.
In other metals trading on Comex Tuesday, September delivery
edged down by a dime, or 0.4%, to $26.14 an ounce, following a flat finish a session ago.
declined by 0.2% to $4.31 an ounce. October platinum
lost nearly 1.1% to $1,111.20 an ounce and September palladium
settled at $2,832.50 an ounce, down 0.9%.