Gold extends gains as U.S. inflation surges

Gold extends gains as U.S. inflation surges

Gold prices edged higher on Thursday, extending a rally fuelled by a surge in U.S. consumer prices that spurred some demand for the metal as an inflation hedge.

Spot gold rose 0.2% to $1,852.90 per ounce by 0710GMT. U.S. gold futures gained 0.3% to $1,854.30.

The metal rose to its highest since June 15 on Wednesday after data showed U.S. consumer prices recorded their biggest annual gain in 31 years last month.

Also read: Stable prices, pent-up demand drive gold buying to pre-Covid levels

“Gold should move higher from here because of higher inflation expectations and a slowdown in both the U.S. and Chinese economies,” said Kunal Shah, head of research at Nirmal Bang Commodities, adding that the metal could rise to $1,900 in the near term.

Gold also gained despite the dollar hitting its highest in a year and benchmark 10-year U.S. Treasury yields rising.

DailyFX currency strategist Ilya Spivak said prices could head lower as markets digest the CPI data, especially amid concerns that the U.S. Federal Reserve could tighten its policy more aggressively.

Interest rate hikes to cool inflation should weigh on gold as they would raise the non-yielding metal’s opportunity cost.

“If inflation expectations get entrenched, that might start to impact consumption, potentially causing stagflation. But gold is unlikely to benefit from it as monetary policy would be uncertain in such a scenario and investors are unlikely to be comfortable with that level of uncertainty,” Spivak said.

Growing concerns

Several Fed officials this week expressed growing concerns over more long-lasting inflation, even as they expect price increases to eventually subside. “We are still heading towards very challenging times with an economic slowdown appearing imminent and gold Exchange Traded Fund (ETF) demand should bounce back, supporting prices this year,” Nirmal Bang’s Shah said.

Spot silver rose 1.1% to $24.90 per ounce. Platinum gained 1.1% to $1,079.37 and palladium climbed 0.4% to $2,029.03

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