“All eyes are on Friday’s U.S. CPI release to gauge how inflation is trending, expect fireworks if a deterioration occurs,” he told MarketWatch. Investors are also keenly awaiting the Fed’s Dec. 14 -15 gathering “to see how interest rate policy will adjust to inflation.”
“The Fed is caught between dousing the markets with higher rates, in order to dampen inflation pressures, or the real risk of spooking the stock markets,” he said. “If rates are flagged to rise, gold may suffer in the short term.” Higher rates lift the opportunity cost of holding the precious metal, making gold less attractive for investors.
The most active February gold contract
GCG22,
+0.16%
GC00,
+0.16%
lost $4.40, or nearly 0.3%, to settle at $1,779.50 an ounce, following a weekly decline of 0.1% for the most-active contract, according to Dow Jones Market Data. Gold also shot up around 1.2% on Friday.
March silver
SIH22,
+0.64%,
meanwhile, fell 22 cents, or 1%, to end at $22.263 an ounce, after putting in a weekly loss of 2.7% on Friday.
Gold rose to end last week as a weaker-than-expected jobs report was seen as unlikely to derail the Fed’s plan to reduce, monthly, market-supportive purchases of Treasurys and mortgage-backed securities, with the report leading a flight to assets perceived as safe.
However, the prospects of higher rates have weighed considerably on gold prices.
Gold has been in consolidation for many months since Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell indicated the central bank may start tapering and raising interest rates, said Jeb Handwerger, editor of newsletter service Gold Stock Trades.
“Powell has gone from saying there is no inflation, then admitted transitory inflation but now he has reluctantly confessed there is full on inflation,” said Handwerger. “Now the question is can they taper and raise rates to control inflation without crashing the all-time everything bubble and preventing gold to shoot higher. So far they are managing.”
““Now the question is can they taper and raise rates to control inflation without crashing the all-time everything bubble and preventing gold to shoot higher.””
“History teaches us we should be cautious because once inflation hits, it’s difficult to reverse the impact so quickly and easily, he said. “Watch gold as the barometer.”
In Monday dealings, the 10-year Treasury note
TMUBMUSD10Y,
1.430%
was yielding 1.437%, up from 1.342%, while the dollar was up 0.2%, as gauged by the ICE U.S. Dollar Index
DXY,
+0.18%.
Meanwhile, investors await the consumer-price index data due out Friday. “If we don’t see inflation expectations stabilize, but rather continuing to decline, then gold will fall in sympathy,” analysts at Sevens Report Research wrote in Monday’s newsletter. “Conversely, a resurgence in inflation will support gold, but the September lows at $1,725 remain a line-in-the-sand for the bulls.”
Read: Traders see next U.S. CPI reading close to 7% as volatile markets try to shake off omicron and Federal Reserve’s hawkish pivot
Other metals traded on Comex finished higher Monday, with March copper
HGH22,
-0.17%
up nearly 1.7% at $4.338 a pound.
January platinum
PLF22,
-0.07%
tacked on 1.1% to $936.40 an ounce, while March palladium
PAH22,
+0.46%
settled at $1,845.60 an ounce, up 1.8%.
Read: Platinum, palladium buck an overall upward trend for commodities, poised for hefty 2021 losses